Frontier Communications Corporation (NASDAQ: FTR) today reported third quarter 2012 revenue of $1,252.5 million, operating income of $275.2 million and net income attributable to common shareholders of Frontier of $67.0 million, or $0.07 per share.
“Frontier had a milestone third quarter, with the best revenue and customer metrics since the closing of our July 2010 acquisition. Our improved broadband speeds, new simple and flexible pricing, and great customer service are positively impacting the customer experience,” said Maggie Wilderotter, Chairman & CEO of Frontier Communications. “Our strong results enabled us to raise $850 million in the bond market during August and October, bringing our 2012 total to $1.35 billion. We are well on track to meet our federal and state broadband expansion commitments, and we are excited about our new fourth quarter promotions and offers, including bundled satellite broadband service with Hughes, bundled mobile service with AT&T, and an Apple gift card promotion.”
Revenue for the third quarter of 2012 was $1,252.5 million as compared to $1,258.8 million in the second quarter of 2012 and $1,290.9 million in the third quarter of 2011. The decrease in revenue for the third quarter of 2012 as compared to the third quarter of 2011 is attributable to decreases in the number of residential and business customers and switched access revenue.
The Company’s results reflect improvements in a number of critical customer metrics. At September 30, 2012, the Company had 2,932,200 residential customers and 291,400 business customers. During the three months ended September 30, 2012 we lost approximately 51,800 customers as compared to 65,700 customers in the three months ended June 30, 2012 and 72,600 customers in the three months ended March 31, 2012. Also, during the most recent quarter, the average monthly customer revenue per customer increased $2.09, or 1.9%, over the second quarter of 2012 and $3.61, or 3.3%, over the first quarter of 2012.The Company’s broadband customer net additions were approximately 1,000 during the third quarter of 2012, reflecting the impact of lower customer activations as a result of fewer marketing promotions and final conversion clean-up. The Company had 1,782,300 broadband customers at September 30, 2012. The Company added 27,300 satellite TV customers and lost 4,100 FiOS video customers during the third quarter of 2012. The Company had 388,300 video customers at September 30, 2012, which reflects the curtailment of DirecTV billing as part of its bundled packages. Network access expenses and other operating expenses for the third quarter of 2012 were $674.4 million as compared to $655.3 million in the second quarter of 2012 and $691.3 million in the third quarter of 2011. Other operating expenses included severance costs of $6.8 million in the third quarter of 2012, $1.5 million in the second quarter of 2012 and $3.6 million in the third quarter of 2011. The Company incurred non-recurring storm cost expenses in the third quarter of 2012 of approximately $15 million as compared to the second quarter of 2012. Depreciation and amortization for the third quarter of 2012 was $298.4 million as compared to $307.0 million in the second quarter of 2012 and $351.9 million in the third quarter of 2011. Amortization expense decreased by $36.7 million in the third quarter of 2012 as compared to the third quarter of 2011, primarily due to the write-off of certain software licenses no longer required for operations and the amortization associated with certain Frontier legacy properties that were fully amortized in March 2012. Integration costs of approximately $4.5 million were incurred during the third quarter of 2012, as compared to approximately $28.6 million ($0.02 per share after tax) in the second quarter of 2012 and $67.4 million ($0.04 per share after tax) in the third quarter of 2011, in connection with our integration of the acquired properties. These nonrecurring costs in 2012 were incurred in connection with our successful conversion of the final nine states onto our platform of system applications in March 2012, and other ongoing network and operations integration work. Our integration costs and related capital expenditures will be completed by the end of 2012. Operating income for the third quarter of 2012 was $275.2 million (reflecting lower depreciation and amortization, integration costs and network access expenses as compared to the third quarter of 2011) and operating income margin was 22.0 percent as compared to operating income of $267.8 million and operating income margin of 21.3 percent in the second quarter of 2012 and operating income of $180.3 million and operating income margin of 14.0 percent in the third quarter of 2011. Excluding integration costs and severance costs, operating income and operating income margin for the three months ended September 30, 2012 would have been $286.5 million and 22.9 percent, respectively. Excluding the comparable adjustments in each period, operating income and operating income margin for the three months ended June 30, 2012 would have been $297.9 million and 23.7 percent, respectively, and for the three months ended September 30, 2011 would have been $251.3 million and 19.5 percent, respectively. Operating income, excluding integration costs and severance costs, decreased $11.4 million in the third quarter of 2012 as compared to the second quarter of 2012, primarily due to the non-recurring storm cost expenses.
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