-
Six consecutive quarters of strong broadband net additions
-
Sequential quarter over quarter growth in residential revenue
-
Revenue stability for the SME business
-
Attractive dividend payout ratio of 46%; free cash flow of $216 million
-
2014 guidance reaffirmed
- Connecticut acquisition remains on track for a Q4 2014 close
STAMFORD, Conn.--(BUSINESS WIRE)--
Frontier Communications Corporation (NASDAQ:FTR) today reported second
quarter 2014 revenue of $1,147.3 million, operating income of $224.3
million and net income attributable to common shareholders of $37.7
million, or $0.04 per share. Excluding acquisition and integration costs
of $19.9 million, acquisition-related interest expense of $7.5 million
and severance costs of $0.8 million, partially offset by discrete tax
items of $1.9 million (combined impact of $16.0 million after tax),
non-GAAP adjusted net income attributable to common shareholders, as
defined by the Company in the attached Schedule B, for the second
quarter of 2014 is $53.7 million, or $0.05 per share.
“Frontier further improved our revenue trajectory with sequential growth
in residential customer revenue and revenue stability in the Small,
Medium and Enterprise portion of the business,” said Maggie Wilderotter,
Frontier Chairman and Chief Executive Officer. “This was the sixth
consecutive quarter of strong broadband net additions and our broadband
market share expanded in 82% of all markets during the first half of
this year. We are executing well against our operating plan in order to
continue these trends. It is gratifying to see our continued progress
toward our long-term objectives of revenue growth, delivering strong
free cash flow and maintaining a very attractive dividend payout ratio.”
Dan McCarthy, Frontier President and Chief Operating Officer added, “We
have been successful in maintaining solid execution in our current
business while simultaneously preparing for a fourth quarter close and
integration of our Connecticut acquisition. We are pleased that
initiatives we have undertaken across the business have been yielding
positive results, as illustrated by our improved momentum since Q1 2013
all the way through the first half of 2014. Our current offers are
resonating in the market and we expanded the capacity and reach of our
networks. Q2 broadband net additions were strong as were CPE sales and
Frontier Secure bundles. We will stay the course in Q3 and I remain
optimistic that our positive trends and momentum will continue.”
Revenue for the second quarter of 2014 was $1,147.3 million as
compared to $1,154.0 million in the first quarter of 2014 and $1,190.5
million in the second quarter of 2013. Total revenue for the second
quarter of 2014 declined sequentially by $6.8 million, or 0.6%, from the
first quarter of 2014 and by $43.3 million, or 4%, from the second
quarter of 2013.
Customer revenue for the second quarter of 2014 of $1,013.3
million declined 0.7% sequentially as compared to $1,020.9 million in
the first quarter of 2014, primarily due to lower voice revenue and
lower non-switched access revenue resulting from the expected decline in
wireless backhaul revenue, partially offset by the increase in data
services revenue. Total residential revenue was $497.0 million
for the second quarter of 2014 as compared to $496.0 million in the
first quarter of 2014, a 0.2% sequential increase. Total business
revenue was $516.3 million for the second quarter of 2014 as
compared to $525.0 million in the first quarter of 2014, a 2% decline.
At June 30, 2014, the Company had 2,762,100 residential
customers and 264,200 business customers. The second
quarter of 2014 resulted in a net loss of 31,800 residential customers
as compared to 9,600 customers in the three months ended March 31, 2014
and 16,300 customers in the three months ended June 30, 2013.
Residential customer losses increased by 22,200 in the second quarter of
2014 as compared to the first quarter of 2014, primarily due to fewer
gross customer additions. The Company’s marketing focused on bundled
customer offers instead of its standalone broadband product and
anticipated seasonal disconnects occurred in markets with colleges and
universities. The average monthly residential revenue per customer was
$59.64 in the second quarter of 2014, an increase of $0.57 as compared
to $59.07 in the first quarter of 2014 and $0.58 as compared to $59.06
in the second quarter of 2013.
During the three months ended June 30, 2014, the Company improved the
rate of sequential decline in business customers by 51%, losing
approximately 2,200 customers as compared to 4,400 customers in the
three months ended March 31, 2014 and 2,900 customers in the three
months ended June 30, 2013. During the most recent quarter, the average
monthly business revenue per customer was $648.71, or 0.4% lower than
the first quarter of 2014 and 0.5% lower than the second quarter of 2013.
The Company’s broadband customer net additions were 27,700 and
64,900 during the second quarter and first half of 2014, respectively.
Since the beginning of 2013, the Company has added 177,100 net broadband
customers. The Company had 1,931,500 broadband customers at June 30,
2014. The Company added 3,600 net video customers during the second
quarter of 2014. The Company had 393,900 video customers at June
30, 2014.
Network access expenses for the second quarter of 2014 were
$106.2 million as compared to $107.1 million in both the first quarter
of 2014 and the second quarter of 2013.
Other operating expenses for the second quarter of 2014 were
$523.4 million as compared to $528.9 million in the first quarter of
2014 and $534.0 million in the second quarter of 2013. Included in other
operating expenses were severance costs of $0.8 million, $0.4 million
and $4.3 million in the second quarter of 2014, the first quarter of
2014 and the second quarter of 2013, respectively. Other operating
expenses, excluding severance costs, in the second quarter of 2014 were
lower than in the second quarter of 2013 by $7.2 million, primarily due
to decreased compensation and benefit costs resulting from reduced
headcount.
Depreciation and amortization for the second quarter of 2014 was
$273.5 million as compared to $281.4 million in the first quarter of
2014 and $297.8 million in the second quarter of 2013. Amortization
expense decreased by $11.1 million in the second quarter of 2014 as
compared to the second quarter of 2013 due to the amortization
recognized on an accelerated method related to the customer base.
Acquisition and integration costs for the second quarter of 2014
were $19.9 million ($0.01 per share after tax) as compared to $10.6
million ($0.01 per share after tax) in the first quarter of 2014 in
connection with the pending AT&T Connecticut transaction, as previously
announced on December 17, 2013.
Operating income for the second quarter of 2014 was $224.3
million and operating income margin was 19.6 percent as compared to
operating income of $226.0 million and operating income margin of 19.6
percent in the first quarter of 2014 and operating income of $266.2
million and operating income margin of 22.4 percent in the second
quarter of 2013, reflecting the gain of $14.6 million on sale of Mohave
partnership interest.
Interest expense for the second quarter of 2014 was $167.6
million as compared to $171.0 million in the first quarter of 2014 and
$166.5 million in the second quarter of 2013. Interest expense increased
by $1.1 million, as compared to the second quarter of 2013, primarily
due to the $7.5 million recognized during the second quarter of 2014
related to commitment fees on the bridge loan facility in connection
with the pending AT&T Connecticut transaction, mostly offset by lower
average debt levels resulting from the debt refinancing activities and
debt retirements during 2013.
Income tax expense (benefit) for the second quarter of 2014 was a
tax expense of $19.0 million as compared to a tax expense of $17.2
million in the first quarter of 2014 and a tax benefit of $(18.8)
million in the second quarter of 2013. Income tax expense increased by
$37.8 million in the second quarter of 2014 as compared to the second
quarter of 2013, principally due to losses of $159.8 million on the
early extinguishment of debt recognized in 2013. The Company had an
effective tax rate for the second quarter of 2014 and 2013 of 33.6% and
32.8%, respectively. The second quarter of 2014 includes discrete tax
items arising from the net reversal of reserves for uncertain tax
positions with an impact of $1.9 million in reduced income tax expense.
Net income (loss) attributable to common shareholders of Frontier
was $37.7 million, or $0.04 per share, in the second quarter of 2014, as
compared to $39.3 million, or $0.04 per share, in the first quarter of
2014 and net loss of $(38.5) million, or $(0.04) per share, in the
second quarter of 2013. The second quarter of 2014 includes acquisition
and integration costs of $19.9 million, acquisition related interest
expense of $7.5 million and severance costs of $0.8 million, partially
offset by discrete tax items of $1.9 million (combined impact of $16.0
million after tax). Excluding the impact of the aforementioned items,
non-GAAP adjusted net income attributable to common shareholders of
Frontier for the second quarter of 2014 would be $53.7 million, or $0.05
per share, as compared to $48.4 million, or $0.05 per share, in the
first quarter of 2014 and $61.3 million, or $0.06 per share, in the
second quarter of 2013.
Capital expenditures for Frontier business operations were $125.5
million for the second quarter of 2014 and $260.6 million for the first
six months of 2014, as compared to $137.5 million for the second quarter
of 2013 and $326.5 million for the first six months of 2013. The Company
also incurred $31.2 million in capital expenditures during the second
quarter of 2014 related to integration activities in connection with the
pending AT&T Connecticut transaction. In the second quarter of 2014, the
Company also used $18.2 million of the previously received Connect
America Fund funding, as compared to $7.4 million in the second quarter
of 2013.
Operating cash flow was $497.8 million for the second quarter of
2014 resulting in an operating cash flow margin of 43.4%. Operating cash
flow, as adjusted and defined by the Company in the attached Schedule A,
was $515.0 million, or 44.9%, after excluding $19.9 million of
acquisition and integration costs and $0.8 million of severance costs,
partially offset by a $3.5 million credit for non-cash pension and other
postretirement benefit costs.
Free cash flow, as defined by the Company in the attached
Schedule A,was $215.9 million for the second quarter of 2014 and
$451.1 million for the first six months of 2014. The Company’s dividend
represents a payout of 46% of free cash flow for the second quarter of
2014 and 44% for the first six months of 2014.
Working Capital
At June 30, 2014, the Company had a working capital surplus of $129.0
million, which includes the classification of certain debt maturing in
the first half of 2015 of $232.2 million as a current liability.
Renewal of Revolving Credit Facility
On June 2, 2014, the Company entered into a new $750.0 million revolving
credit facility that will expire on May 31, 2018. Upon entering into the
new facility, the existing facility was terminated.
Delayed Draw Debt Financing
On June 2, 2014, the Company completed a bank financing for a $350.0
million senior unsecured delayed draw term loan facility. The term loans
will be drawn upon closing of the AT&T Connecticut transaction and
proceeds will be used to partially finance the acquisition. The final
maturity date is the earlier of the fifth anniversary of the draw date
and December 15, 2019.
Pension Contributions
The Company made total cash contributions to its pension plan of $19.6
million during the second quarter of 2014 and $31.2 million during the
first six months of 2014. We expect that we will make contributions of
cash and/or other assets to our pension plan of approximately $100
million in 2014.
2014 Guidance Remains Unchanged
For the full year of 2014, the Company’s expectations for capital
expenditures and free cash flow for Frontier business
operations remain unchanged and are within a range of $575 million to
$625 million and $725 million to $775 million, respectively. Acquisition
and integration costs for the pending AT&T Connecticut transaction are
excluded from this guidance. The Company expects that absent any further
legislative changes in 2014, its cash taxes guidance remains
unchanged and will be in the range of $130 million to $160 million for
2014 for our current business operations, taking into account our
estimated pre-close integration expenditures. Our expectations to incur
additional operating expenses of $140 million to $170 million and
capital expenditures of $85 million to $105 million in 2014 related to
integration activities in connection with the pending AT&T Connecticut
transaction also remain unchanged.
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 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 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 in the statement of operations, or 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 investment gains, discrete tax
items, acquisition and integration costs, acquisition related interest
expense, severance costs, non-cash pension and other postretirement
benefit costs, losses on early extinguishment of debt and gain on sale
of Mohave partnership interest, 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 4:30 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 second 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 for one
week beginning at 8:00 P.M. Eastern time, Tuesday, August 5, 2014 via
dial-in at 888-203-1112 for U.S. and Canadian callers or, outside the
United States and Canada, at 719-457-0820, passcode 8662865. 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 27 states. Frontier’s
approximately 13,900 employees are based entirely in the United States.
More information is available at www.frontier.com
and www.frontier.com/ir.
Forward-Looking Statements
This 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
include, but are not limited to: our ability to complete the acquisition
of the Connecticut operations from AT&T on the terms or timeline
currently contemplated, or at all; the ability to successfully integrate
the Connecticut operations into our existing operations and the
diversion of management’s attention from ongoing business and regular
business responsibilities to effect such integration; the effects of
increased expenses incurred due to activities related to the AT&T
Transaction; the risk that the cost savings from the AT&T Transaction
may not be fully realized or may take longer to realize than expected or
that our actual integration costs may exceed our estimates; the
sufficiency of the assets to be acquired from AT&T to enable the
combined company to operate the acquired business; 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; the
failure to obtain, delays in obtaining or adverse conditions contained
in any required regulatory approvals for the AT&T Transaction;
disruption from the AT&T Transaction making it more difficult to
maintain relationships with customers or suppliers of the Connecticut
operations; the effects of greater than anticipated competition from
cable, wireless and other wireline carriers that could require us to
implement new pricing, marketing strategies or new product or service
offerings and the risk that we will not respond on a timely or
profitable basis; 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 effects of ongoing changes in the
regulation of the communications industry as a result of federal and
state legislation and regulation, or changes in the enforcement or
interpretation of such legislation and regulation; the effects of any
unfavorable outcome with respect to any current or future legal,
governmental or regulatory proceedings, audits or disputes; 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
successfully adjust to changes in the communications industry and to
implement strategies for growth; continued reductions in switched access
revenues as a result of regulation, competition or technology
substitutions; our ability to effectively manage service quality in our
territories and meet mandated service quality metrics; 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 customers; the effects of changes in accounting
policies or practices adopted voluntarily or as required by generally
accepted accounting principles or regulations; our ability to
effectively manage our operations, operating expenses and capital
expenditures, and to repay, reduce or refinance our debt; the effects of
changes in both general and local economic conditions on the markets
that we serve, which can affect demand for our products and services,
customer purchasing decisions, collectability of revenues and required
levels of capital expenditures related to new construction of residences
and businesses; the effects of technological changes and competition on
our capital expenditures, products and service offerings, including the
lack of assurance that our network improvements in speed and capacity
will be sufficient to meet or exceed the capabilities and quality of
competing networks; the effects of increased medical expenses (including
as a result of the impact of the Patient Protection and Affordable Care
Act) and pension and postemployment expenses, such as retiree medical
and severance costs, and related funding requirements; 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 and/or
the value of our pension plan assets, which could require us to make
increased contributions to the pension plan in 2014 and beyond; the
effects of economic downturns which could result in difficulty in
collection of revenues and loss of customers; 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 availability, or increase the cost, of financing to us; our
cash flow from operations, amount of capital expenditures, debt service
requirements, cash paid for income taxes and liquidity may affect our
payment of dividends on our common shares; 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; and the effects of severe weather events such as hurricanes,
tornadoes, ice storms or other natural or man-made disasters, which may
increase our operating expenses or adversely impact customer revenue.
These and other uncertainties related to our business are described in
greater detail in our filings with the U.S. 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
|
|
For the six months ended
|
($ in thousands, except per share amounts) | | June 30,
|
| March 31,
|
| June 30,
| | June 30,
|
| |
2014
| |
2014
| |
2013
| |
2014
|
|
2013
|
| | | | | | | | | | | | | | |
|
| Income Statement Data | | | | | | | | | | | | | | | |
|
Revenue
| |
$
|
1,147,265
|
| |
$
|
1,154,046
|
| |
$
|
1,190,533
|
| |
$
|
2,301,311
|
| |
$
|
2,395,929
|
|
| | | | | | | | | | | | | | |
|
|
Operating expenses:
| | | | | | | | | | | | | | | |
|
Network access expenses
| | |
106,224
| | | |
107,092
| | | |
107,114
| | | |
213,316
| | | |
216,512
| |
|
Other operating expenses (1) | | |
523,385
| | | |
528,926
| | | |
534,015
| | | |
1,052,311
| | | |
1,075,514
| |
|
Depreciation and amortization
| | |
273,463
| | | |
281,407
| | | |
297,849
| | | |
554,870
| | | |
601,524
| |
|
Acquisition and integration costs (2) | |
|
19,851
|
| |
|
10,596
|
| |
|
-
|
| |
|
30,447
|
| |
|
-
|
|
|
Total operating expenses
| |
|
922,923
|
| |
|
928,021
|
| |
|
938,978
|
| |
|
1,850,944
|
| |
|
1,893,550
|
|
| | | | | | | | | | | | | | |
|
|
Gain on sale of Mohave partnership interest
| |
|
-
|
| |
|
-
|
| |
|
14,601
|
| |
|
-
|
| |
|
14,601
|
|
| | | | | | | | | | | | | | |
|
|
Operating income
| | |
224,342
| | | |
226,025
| | | |
266,156
| | | |
450,367
| | | |
516,980
| |
| | | | | | | | | | | | | | |
|
|
Investment and other income (expense), net
| | |
(17
|
)
| | |
1,395
| | | |
2,956
| | | |
1,378
| | | |
7,610
| |
|
Losses on early extinguishment of debt
| | |
-
| | | |
-
| | | |
159,780
| | | |
-
| | | |
159,780
| |
|
Interest expense
| |
|
167,611
|
| |
|
170,957
|
| |
|
166,547
|
| |
|
338,568
|
| |
|
337,967
|
|
| | | | | | | | | | | | | | |
|
|
Income (loss) before income taxes
| | |
56,714
| | | |
56,463
| | | |
(57,215
|
)
| | |
113,177
| | | |
26,843
| |
|
Income tax expense (benefit)
| |
|
19,034
|
| |
|
17,189
|
| |
|
(18,755
|
)
| |
|
36,223
|
| |
|
14,520
|
|
| | | | | | | | | | | | | | |
|
|
Net income (loss) (2) | | |
37,680
| | | |
39,274
| | | |
(38,460
|
)
| | |
76,954
| | | |
12,323
| |
Less: Income attributable to the noncontrolling interest in a
partnership
| |
|
-
|
| |
|
-
|
| |
|
-
|
| |
|
-
|
| |
|
2,643
|
|
| | | | | | | | | | | | | | |
|
Net income (loss) attributable to common shareholders of
Frontier | |
$
|
37,680
|
| |
$
|
39,274
|
| |
$
|
(38,460
|
)
| |
$
|
76,954
|
| |
$
|
9,680
|
|
| | | | | | | | | | | | | | |
|
|
Weighted average shares outstanding
| | |
994,628
| | | |
994,026
| | | |
992,611
| | | |
994,285
| | | |
992,164
| |
| | | | | | | | | | | | | | |
|
Basic net income (loss) per common share attributable to common
shareholders of Frontier (3) | |
$
|
0.04
|
| |
$
|
0.04
|
| |
$
|
(0.04
|
)
| |
$
|
0.08
|
| |
$
|
0.01
|
|
| | | | | | | | | | | | | | |
|
Non-GAAP adjusted net income (loss) per common share
attributable to common shareholders of Frontier (3)(4) | |
$
|
0.05
|
| |
$
|
0.05
|
| |
$
|
0.06
|
| |
$
|
0.10
|
| |
$
|
0.11
|
|
| | | | | | | | | | | | | | |
|
| Other Financial Data | | | | | | | | | | | | | | | |
|
Capital expenditures - Business operations
| |
$
|
125,536
| | |
$
|
135,059
| | |
$
|
137,513
| | |
$
|
260,595
| | |
$
|
326,522
| |
|
Capital expenditures - Integration activities
| | |
31,227
| | | |
10,348
| | | |
-
| | | |
41,575
| | | |
-
| |
|
Operating cash flow, as adjusted (4) | | |
515,031
| | | |
521,469
| | | |
557,286
| | | |
1,036,500
| | | |
1,119,218
| |
|
Free cash flow (4) | | |
215,899
| | | |
235,154
| | | |
175,873
| | | |
451,053
| | | |
382,080
| |
|
Dividends paid
| | |
100,209
| | | |
100,228
| | | |
100,054
| | | |
200,437
| | | |
199,866
| |
|
Dividend payout ratio (5) | | |
46
|
%
| | |
43
|
%
| | |
57
|
%
| | |
44
|
%
| | |
52
|
%
|
| (1) |
|
Includes severance costs of $0.8 million, $0.4 million and $4.3
million for the quarters ended June 30, 2014, March 31, 2014 and
June 30, 2013, respectively, and $1.2 million and $6.7 million for
the six months ended June 30, 2014 and 2013, respectively.
|
| (2) | |
Reflects acquisition and integration costs of $19.9 million ($12.6
million or $0.01 per share after tax) and $10.6 million ($6.9
million or $0.01 per share after tax) for the quarters ended June
30, 2014 and March 31, 2014, respectively, and $30.4 million ($19.5
million or $0.02 per share after tax) for the six months ended June
30, 2014.
|
| (3) | |
Calculation based on weighted average shares outstanding.
|
| (4) | |
Reconciliations to the most comparable GAAP measures are presented
in Schedules A and B at the end of these tables.
|
| (5) | |
Represents dividends paid divided by free cash flow, as defined in
Schedule A.
|
|
|
Frontier Communications Corporation |
Consolidated Financial and Operating Data |
|
|
|
|
For the quarter ended
|
|
For the six months ended
|
(Amounts in thousands, except operating
data) | | June 30,
|
| March 31,
|
| June 30,
| | June 30,
|
| |
2014
| |
2014
| |
2013
| |
2014
|
|
2013
|
| | | | | | | | | | | | | | |
|
| Selected Income Statement Data | | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | | |
|
Voice services
| |
$
|
471,570
| | |
$
|
482,319
| | |
$
|
513,800
| | |
$
|
953,889
| | |
$
|
1,039,744
| |
|
Data and internet services
| | |
462,730
| | | |
461,496
| | | |
467,428
| | | |
924,226
| | | |
922,264
| |
|
Other
| |
|
79,001
|
| |
|
77,123
|
| |
|
70,622
|
| |
|
156,124
|
| |
|
152,980
|
|
|
Customer revenue
| | |
1,013,301
| | | |
1,020,938
| | | |
1,051,850
| | | |
2,034,239
| | | |
2,114,988
| |
|
Switched access and subsidy
| |
|
133,964
|
| |
|
133,108
|
| |
|
138,683
|
| |
|
267,072
|
| |
|
280,941
|
|
|
Total revenue
| |
$
|
1,147,265
|
| |
$
|
1,154,046
|
| |
$
|
1,190,533
|
| |
$
|
2,301,311
|
| |
$
|
2,395,929
|
|
| | | | | | | | | | | | | | |
|
| Other Financial and Operating Data | | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | | |
|
Residential
| |
$
|
497,040
| | |
$
|
495,964
| | |
$
|
505,181
| | |
$
|
993,004
| | |
$
|
1,019,706
| |
|
Business
| |
|
516,261
|
| |
|
524,974
|
| |
|
546,669
|
| |
|
1,041,235
|
| |
|
1,095,282
|
|
|
Customer revenue
| | |
1,013,301
| | | |
1,020,938
| | | |
1,051,850
| | | |
2,034,239
| | | |
2,114,988
| |
|
Switched access and subsidy
| |
|
133,964
|
| |
|
133,108
|
| |
|
138,683
|
| |
|
267,072
|
| |
|
280,941
|
|
|
Total revenue
| |
$
|
1,147,265
|
| |
$
|
1,154,046
|
| |
$
|
1,190,533
|
| |
$
|
2,301,311
|
| |
$
|
2,395,929
|
|
| | | | | | | | | | | | | | |
|
| Customers | | |
3,026,281
| | | |
3,060,280
| | | |
3,121,014
| | | |
3,026,281
| | | |
3,121,014
| |
| Residential customer metrics: | | | | | | | | | | | | | | | |
|
Customers
| | |
2,762,099
| | | |
2,793,908
| | | |
2,842,883
| | | |
2,762,099
| | | |
2,842,883
| |
|
Revenue
| |
$
|
497,040
| | |
$
|
495,964
| | |
$
|
505,181
| | |
$
|
993,004
| | |
$
|
1,019,706
| |
|
Average monthly residential revenue per customer (1) | |
$
|
59.64
| | |
$
|
59.07
| | |
$
|
59.06
| | |
$
|
59.35
| | |
$
|
58.95
| |
|
Customer monthly churn
| | |
1.80
|
%
| | |
1.63
|
%
| | |
1.64
|
%
| | |
1.71
|
%
| | |
1.64
|
%
|
| | | | | | | | | | | | | | |
|
| Business customer metrics: | | | | | | | | | | | | | | | |
|
Customers
| | |
264,182
| | | |
266,372
| | | |
278,131
| | | |
264,182
| | | |
278,131
| |
|
Revenue
| |
$
|
516,261
| | |
$
|
524,974
| | |
$
|
546,669
| | |
$
|
1,041,235
| | |
$
|
1,095,282
| |
|
Average monthly business revenue per customer
| |
$
|
648.71
| | |
$
|
651.53
| | |
$
|
651.75
| | |
$
|
649.97
| | |
$
|
648.02
| |
| | | | | | | | | | | | | | |
|
| Employees | | |
13,910
| | | |
13,676
| | | |
14,069
| | | |
13,910
| | | |
14,069
| |
| Broadband subscribers | | |
1,931,521
| | | |
1,903,828
| | | |
1,812,110
| | | |
1,931,521
| | | |
1,812,110
| |
| Video subscribers | | |
393,901
| | | |
390,334
| | | |
380,180
| | | |
393,901
| | | |
380,180
| |
| Switched access minutes of use (in millions) | | |
3,760
| | | |
3,943
| | | |
4,109
| | | |
7,703
| | | |
8,399
| |
(1) Calculation excludes the Mohave Cellular Limited
Partnership.
Note: As stated in our quarterly report for the period ended March 31,
2014, prior period revenue and certain operating statistics have been
revised from the previously disclosed amounts to reflect the immaterial
reclassification of certain revenues from residential to business and
the related impact on average monthly revenue per customer amounts.
|
|
Frontier Communications Corporation |
Condensed Consolidated Balance Sheet Data |
|
|
($ in thousands) |
| |
| | June 30, 2014 |
| December 31, 2013 |
ASSETS | | | | | | |
|
Current assets:
| | | | | | |
|
Cash and cash equivalents
| |
$
|
801,697
| | |
$
|
880,039
| |
|
Accounts receivable, net
| | |
463,932
| | | |
479,210
| |
|
Restricted cash
| | |
3,200
| | | |
11,411
| |
|
Other current assets
| |
|
142,426
|
| |
|
248,179
|
|
|
Total current assets
| | |
1,411,255
| | | |
1,618,839
| |
| | | | | |
|
|
Restricted cash
| | |
2,000
| | | |
2,000
| |
|
Property, plant and equipment, net
| | |
7,162,649
| | | |
7,255,762
| |
|
Other assets - principally goodwill
| |
|
7,603,374
|
| |
|
7,758,883
|
|
|
Total assets
| |
$
|
16,179,278
|
| |
$
|
16,635,484
|
|
| | | | | |
|
LIABILITIES AND EQUITY | | | | | | |
|
Current liabilities:
| | | | | | |
|
Long-term debt due within one year
| |
$
|
262,527
| | |
$
|
257,916
| |
|
Accounts payable and other current liabilities
| |
|
1,019,727
|
| |
|
1,043,671
|
|
|
Total current liabilities
| | |
1,282,254
| | | |
1,301,587
| |
| | | | | |
|
|
Deferred income taxes and other liabilities
| | |
3,303,041
| | | |
3,404,749
| |
|
Long-term debt
| | |
7,650,833
| | | |
7,873,667
| |
|
Equity
| |
|
3,943,150
|
| |
|
4,055,481
|
|
|
Total liabilities and equity
| |
$
|
16,179,278
|
| |
$
|
16,635,484
|
|
|
|
Frontier Communications Corporation |
Consolidated Cash Flow Data |
|
|
($ in thousands) |
|
For the six months ended June 30,
|
| |
2014
|
|
2013
|
| | | | | |
|
| Cash flows provided by (used in) operating activities: | | | | | | |
|
Net income
| |
$
|
76,954
| | |
$
|
12,323
| |
Adjustments to reconcile net income to net cash provided by
operating activities:
| | | | | | |
|
Depreciation and amortization
| | |
554,870
| | | |
601,524
| |
|
Losses on early extinguishment of debt
| | |
-
| | | |
159,780
| |
|
Pension/OPEB costs
| | |
(417
|
)
| | |
8,608
| |
|
Stock based compensation expense
| | |
11,892
| | | |
8,927
| |
|
Gain on sale of Mohave partnership interest
| | |
-
| | | |
(14,601
|
)
|
|
Other non-cash adjustments
| | |
19,567
| | | |
5,568
| |
|
Deferred income taxes
| | |
(66,493
|
)
| | |
(19,148
|
)
|
|
Change in accounts receivable
| | |
15,278
| | | |
43,202
| |
|
Change in accounts payable and other liabilities
| | |
(34,881
|
)
| | |
(75,159
|
)
|
|
Change in other current assets
| |
|
64,349
|
| |
|
(50,317
|
)
|
| Net cash provided by operating activities | | |
641,119
| | | |
680,707
| |
| | | | | |
|
| Cash flows provided from (used by) investing activities: | | | | | | |
|
Capital expenditures - Business operations
| | |
(260,595
|
)
| | |
(326,522
|
)
|
|
Capital expenditures - Integration activities
| | |
(41,575
|
)
| | |
-
| |
|
Network expansion funded by Connect America Fund | | |
(24,568
|
)
| | |
(9,233
|
)
|
|
Grant funds received for network expansion from Connect America Fund | | |
3,748
| | | |
5,998
| |
|
Proceeds on sale of Mohave partnership interest
| | |
-
| | | |
17,755
| |
|
Cash transferred from escrow
| | |
8,211
| | | |
21,790
| |
|
Other assets purchased and distributions received, net
| |
|
21,986
|
| |
|
1,721
|
|
| Net cash used by investing activities | | |
(292,793
|
)
| | |
(288,491
|
)
|
| | | | | |
|
| Cash flows provided from (used by) financing activities: | | | | | | |
|
Long-term debt borrowings
| | |
10,801
| | | |
750,000
| |
|
Financing costs paid
| | |
(6,140
|
)
| | |
(19,360
|
)
|
|
Long-term debt payments
| | |
(229,626
|
)
| | |
(1,534,074
|
)
|
|
Premium paid to retire debt
| | |
-
| | | |
(159,429
|
)
|
|
Dividends paid
| | |
(200,437
|
)
| | |
(199,866
|
)
|
|
Other financing activities
| |
|
(1,266
|
)
| |
|
(7,389
|
)
|
| Net cash used by financing activities | | |
(426,668
|
)
| | |
(1,170,118
|
)
|
| | | | | |
|
|
Decrease in cash and cash equivalents
| | |
(78,342
|
)
| | |
(777,902
|
)
|
|
Cash and cash equivalents at January 1,
| |
|
880,039
|
| |
|
1,326,532
|
|
| | | | | |
|
| Cash and cash equivalents at June 30, | |
$
|
801,697
|
| |
$
|
548,630
|
|
| | | | | |
|
| Supplemental cash flow information: | | | | | | |
| Cash paid during the period for: | | | | | | |
|
Interest
| |
$
|
319,326
| | |
$
|
348,459
| |
|
Income taxes, net
| |
$
|
14,408
| | |
$
|
83,462
| |
|
|
Schedule A |
Frontier Communications Corporation |
Reconciliation of Non-GAAP Financial Measures |
|
|
|
|
For the quarter ended
|
|
For the six months ended
|
($ in thousands) | | June 30,
|
| March 31,
|
| June 30,
| | June 30,
|
| |
2014
| |
2014
| |
2013
| |
2014
|
|
2013
|
| | | | | | | | | | | | | | | |
Operating Income to Adjusted Operating
Cash Flow to Free Cash Flow | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
| Revenue | | $ | 1,147,265 | | | $ | 1,154,046 | | | $ | 1,190,533 | | | $ | 2,301,311 | | | $ | 2,395,929 | |
|
Less: Total operating expenses
| | |
922,923
| | | |
928,021
| | | |
938,978
| | | |
1,850,944
| | | |
1,893,550
| |
|
Add: Gain on sale of Mohave partnership interest
| |
|
-
|
| |
|
-
|
| |
|
14,601
|
| |
|
-
|
| |
|
14,601
|
|
| Operating income | | | 224,342 | | | | 226,025 | | | | 266,156 | | | | 450,367 | | | | 516,980 | |
| | | | | | | | | | | | | | |
|
|
Depreciation and amortization
| |
|
273,463
|
| |
|
281,407
|
| |
|
297,849
|
| |
|
554,870
|
| |
|
601,524
|
|
| Operating cash flow | | |
497,805
| | | |
507,432
| | | |
564,005
| | | |
1,005,237
| | | |
1,118,504
| |
| | | | | | | | | | | | | | |
|
| Add back: | | | | | | | | | | | | | | | |
|
Acquisition and integration costs
| | |
19,851
| | | |
10,596
| | | |
-
| | | |
30,447
| | | |
-
| |
|
Pension/OPEB costs (non-cash) (1) | | |
(3,470
|
)
| | |
3,053
| | | |
3,590
| | | |
(417
|
)
| | |
8,608
| |
|
Severance costs
| | |
845
| | | |
388
| | | |
4,292
| | | |
1,233
| | | |
6,707
| |
| | | | | | | | | | | | | | |
|
| Subtract: | | | | | | | | | | | | | | | |
|
Gain on sale of Mohave partnership interest
| |
|
-
|
| |
|
-
|
| |
|
14,601
|
| |
|
-
|
| |
|
14,601
|
|
| Adjusted operating cash flow | | | 515,031 | | | | 521,469 | | | | 557,286 | | | | 1,036,500 | | | | 1,119,218 | |
| | | | | | | | | | | | | | |
|
| Add back: | | | | | | | | | | | | | | | |
|
Interest and dividend income
| | |
110
| | | |
1,122
| | | |
120
| | | |
1,232
| | | |
1,886
| |
|
Stock based compensation
| | |
5,741
| | | |
6,151
| | | |
5,042
| | | |
11,892
| | | |
8,927
| |
| | | | | | | | | | | | | | |
|
| Subtract: | | | | | | | | | | | | | | | |
|
Cash paid (refunded) for income taxes
| | |
19,336
| | | |
(4,928
|
)
| | |
82,515
| | | |
14,408
| | | |
83,462
| |
|
Capital expenditures - Business operations (2) | | |
125,536
| | | |
135,059
| | | |
137,513
| | | |
260,595
| | | |
326,522
| |
|
Interest expense (3) | |
|
160,111
|
| |
|
163,457
|
| |
|
166,547
|
| |
|
323,568
|
| |
|
337,967
|
|
| Free cash flow | | $ | 215,899 |
| | $ | 235,154 |
| | $ | 175,873 |
| | $ | 451,053 |
| | $ | 382,080 |
|
| | | | | | | | | | | | | | |
|
Operating income margin (Operating income divided by revenue) | | | | | | | | | | | | | | | |
|
As Reported
| | |
19.6
|
%
| | |
19.6
|
%
| | |
22.4
|
%
| | |
19.6
|
%
| | |
21.6
|
%
|
As Adjusted (4) | | |
21.1
|
%
| | |
20.8
|
%
| | |
21.8
|
%
| | |
20.9
|
%
| | |
21.6
|
%
|
| | | | | | | | | | | | | | |
|
Operating cash flow margin (Operating cash flow divided by
revenue) | | | | | | | | | | | | | | | |
|
As Reported
| | |
43.4
|
%
| | |
44.0
|
%
| | |
47.4
|
%
| | |
43.7
|
%
| | |
46.7
|
%
|
|
As Adjusted
| | |
44.9
|
%
| | |
45.2
|
%
| | |
46.8
|
%
| | |
45.0
|
%
| | |
46.7
|
%
|
| (1) |
|
Reflects pension and other postretirement benefit (OPEB) expense,
net of capitalized amounts, of $14.2 million, $14.3 million and
$20.5 million for the quarters ended June 30, 2014, March 31, 2014
and June 30, 2013, respectively, less cash pension contributions and
certain OPEB costs/payments of $17.7 million, $11.2 million and
$16.9 million for the quarters ended June 30, 2014, March 31, 2014
and June 30, 2013, respectively. Reflects pension and OPEB expense,
net of capitalized amounts, of $28.5 million and $41.0 million for
the six months ended June 30, 2014 and 2013, respectively, less cash
pension contributions and certain OPEB costs/payments of $28.9
million and $32.4 million for the six months ended June 30, 2014 and
2013, respectively.
|
| (2) | |
Excludes capital expenditures for integration activities.
|
| (3) | |
Excludes interest expense of $7.5 million for the quarters ended
June 30, 2014 and March 31, 2014, and $15.0 million for the six
months ended June 30, 2014, related to commitment fees on the bridge
loan facility in connection with the pending AT&T Connecticut
transaction.
|
| (4) | |
Excludes acquisition and integration costs, pension and OPEB costs
(non-cash), severance costs and gain on sale of Mohave partnership
interest.
|
|
|
Schedule B |
Frontier Communications Corporation |
Reconciliation of Non-GAAP Financial Measures |
|
|
($ in thousands, except per share amounts) |
| |
| |
For the quarter ended
|
| | June 30, 2014 |
| March 31, 2014 |
| June 30, 2013 |
| | |
|
Earnings Per
| | |
|
Earnings Per
| |
Net Income
|
|
Earnings (Loss)
|
Net income (loss) attributable to common
shareholders of Frontier | |
Net Income
| |
Share
| |
Net Income
| |
Share
| |
(Loss)
| |
Per Share
|
| | | | | | | | | | | | | | | | | |
|
|
GAAP, as reported
| |
$
|
37,680
| | |
$
|
0.04
| | |
$
|
39,274
| | |
$
|
0.04
| | |
$
|
(38,460
|
)
| |
$
|
(0.04
|
)
|
|
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 | | |
-
| | | |
-
| | | |
-
| | | |
-
| | | |
(94
|
)
| | |
-
| |
|
Acquisition and integration costs
| | |
12,595
| | | |
0.01
| | | |
6,855
| | | |
0.01
| | | |
-
| | | |
-
| |
|
Severance costs
| | |
537
| | | |
-
| | | |
251
| | | |
-
| | | |
2,756
| | | |
-
| |
|
Acquisition related interest expense (1) | | |
4,730
| | | |
0.01
| | | |
4,852
| | | |
-
| | | |
-
| | | |
-
| |
|
Discrete tax items (2) | |
|
(1,861
|
)
| |
|
-
|
| |
|
(2,866
|
)
| |
|
-
|
| |
|
6,800
|
| |
|
0.01
|
|
Non-GAAP, as adjusted (3) | |
$
|
53,681
|
| |
$
|
0.05
|
| |
$
|
48,366
|
| |
$
|
0.05
|
| |
$
|
61,299
|
| |
$
|
0.06
|
|
|
|
| |
For the six months ended
|
| | June 30, 2014 | | | | June 30, 2013 |
| | | |
Earnings Per
| | | | | | | |
Earnings Per
|
Net income (loss) attributable to common
shareholders of Frontier | |
Net Income
| |
Share
| | | | | |
Net Income
| |
Share
|
| | | | | | | | | | | | | | | | | |
|
|
GAAP, as reported
| |
$
|
76,954
| | |
$
|
0.08
| | | | | | | | |
$
|
9,680
| | |
$
|
0.01
| |
|
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
| | |
19,450
| | | |
0.02
| | | | | | | | | |
-
| | | |
-
| |
|
Severance costs
| | |
788
| | | |
-
| | | | | | | | | |
4,238
| | | |
-
| |
|
Acquisition related interest expense (1) | | |
9,582
| | | |
0.01
| | | | | | | | | |
-
| | | |
-
| |
|
Discrete tax items (2) | |
|
(4,727
|
)
| |
|
-
|
| | | | | | | |
|
6,800
|
| |
|
0.01
|
|
Non-GAAP, as adjusted (3) | |
$
|
102,047
|
| |
$
|
0.10
|
| | | | | | | |
$
|
110,126
|
| |
$
|
0.11
|
|
| (1) |
|
Represents interest expense related to commitment fees on the bridge
loan facility in connection with the pending AT&T Connecticut
transaction.
|
| (2) | |
Includes impact arising from state law changes, the net reversal of
uncertain tax positions, settlement of an IRS audit and changes in
certain deferred tax balances.
|
| (3) | |
Non-GAAP, as adjusted may not sum due to rounding.
|
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