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Frontier Communications Reports 2013 Third Quarter Results

TABLES TO FOLLOW

                                 
 
Frontier Communications Corporation
Consolidated Financial Data
 
 
For the quarter ended

For the nine months ended September 30,

September 30, 2013

June 30, 2013

September 30, 2012

(Amounts in thousands, except per share amounts)

2013

2012

 
Income Statement Data
Revenue $ 1,185,278   $ 1,190,533   $ 1,252,469   $ 3,581,207   $ 3,779,300  
 
Network access expenses 103,955 107,114 102,051 320,467 333,053
Other operating expenses (1) 549,141 534,015 572,348 1,624,655 1,663,842
Depreciation and amortization 285,701 297,849 298,416 887,225 962,763
Pension settlement costs (2) 40,309 - - 40,309 -
Integration costs (3)   -     -     4,458     -     68,204  
Total operating expenses   979,106     938,978     977,273     2,872,656     3,027,862  
 
Gain on sale of Mohave partnership interest   -     14,601     -     14,601     -  
 
Operating income 206,172 266,156 275,196 723,152 751,438
 
Losses on early extinguishment of debt - (159,780 ) (245 ) (159,780 ) (71,063 )
Investment and other income, net 1,524 2,956 4,602 9,134 18,994
Interest expense   163,835     166,547     172,188     501,802     509,104  
Income (loss) before income taxes 43,861 (57,215 ) 107,365 70,704 190,265
Income tax expense (benefit)   8,461     (18,755 )   35,739     22,981     66,150  
Net income (loss) (2) (3) 35,400 (38,460 ) 71,626 47,723 124,115

Less: Income attributable to the noncontrolling interest in a partnership

  -     -     4,626     2,643     12,358  
Net income (loss) attributable to common shareholders of Frontier $ 35,400   $ (38,460 ) $ 67,000   $ 45,080   $ 111,757  
 
Weighted average shares outstanding 993,115 992,611 991,295 992,480 990,300
 

Basic net income (loss) per share attributable to common shareholders of Frontier (4)

$ 0.04 $ (0.04 ) $ 0.07 $ 0.04 $ 0.11
 

Non-GAAP adjusted net income (loss) per share attributable to common shareholders of Frontier (4) (5)

$ 0.06 $ 0.06 $ 0.07 $ 0.17 $ 0.20
 
Other Financial Data
Capital expenditures - Business operations $ 157,560 $ 137,513 $ 195,034 $ 484,082 $ 571,107
Capital expenditures - Integration activities - - 10,828 - 38,768
Operating cash flow, as adjusted (5) 548,781 557,286 581,281 1,667,999 1,821,478
Free cash flow (5) 232,189 175,873 215,256 614,269 753,283
Dividends paid 99,956 100,054 99,845 299,822 299,547
Dividend payout ratio (6) 43 % 57 % 46 % 49 % 40 %

 

(1)   Includes severance costs of $2.6 million, $4.3 million and $6.8 million for the quarters ended September 30, 2013, June 30, 2013 and September 30, 2012, respectively, and $9.4 million and $14.8 million for the nine months ended September 30, 2013 and 2012, respectively.
(2) Reflects non-cash pension settlement charge of $40.3 million ($25.0 million or $0.02 per share after tax) during the quarter and nine months ended September 30, 2013 for the accelerated recognition of a portion of the unrecognized acturial 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 integration costs of $4.5 million ($2.7 million after tax) for the quarter ended September 30, 2012 and $68.2 million ($42.3 million or $0.04 per share after tax) for the nine months ended September 30, 2012.
(4) Calculated 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.
 
 
                               
 
Frontier Communications Corporation
Consolidated Financial and Operating Data
 
 
 
For the quarter ended For the nine months ended September 30,
September 30, 2013 June 30, 2013 September 30, 2012
(Amounts in thousands, except operating data) 2013 2012
 
Selected Income Statement Data
Revenue:
Local and long distance services $ 510,080 $ 513,800 $ 560,952 $ 1,549,824 $ 1,700,094
Data and internet services 471,211 467,428 455,807 1,393,475 1,351,858
Other   68,772     70,622     87,581     221,752     266,492  
Customer revenue 1,050,063 1,051,850 1,104,340 3,165,051 3,318,444
Switched access and subsidy   135,215     138,683     148,129     416,156     460,856  
Total revenue $ 1,185,278   $ 1,190,533   $ 1,252,469   $ 3,581,207   $ 3,779,300  
 
Other Financial and Operating Data
 
Revenue:
Residential $ 506,073 $ 505,483 $ 531,314 $ 1,526,354 $ 1,607,244
Business   543,990     546,367     573,026     1,638,697     1,711,200  
Customer revenue 1,050,063 1,051,850 1,104,340 3,165,051 3,318,444
Switched access and subsidy   135,215     138,683     148,129     416,156     460,856  
Total revenue $ 1,185,278   $ 1,190,533   $ 1,252,469   $ 3,581,207   $ 3,779,300  
Customers 3,096,794 3,121,014 3,223,557 3,096,794 3,223,557
Residential customer metrics:
Customers 2,822,141 2,842,883 2,932,163 2,822,141 2,932,163
Revenue $ 506,073 $ 505,483 $ 531,314 $ 1,526,354 $ 1,607,244
Average monthly residential revenue per customer (1) $ 59.56 $ 59.10 $ 58.71 $ 59.18 $ 58.24
Customer monthly churn 1.81 % 1.64 % 1.64 % 1.70 % 1.62 %
Business customer metrics:
Customers 274,653 278,131 291,394 274,653 291,394
Revenue $ 543,990 $ 546,367 $ 573,026 $ 1,638,697 $ 1,711,200
Average monthly business revenue per customer $ 656.06 $ 651.39 $ 649.85 $ 650.43 $ 634.78
 
Employees 13,937 14,069 15,250 13,937 15,250
Broadband subscribers 1,838,915 1,812,110 1,749,139 1,838,915 1,749,139
Video subscribers (2) 377,915 380,180 328,538 377,915 328,538
Switched access minutes of use (in millions) 4,091 4,109 4,481 12,490 13,769

 

 
(1)   Calculation excludes the Mohave Cellular Limited Partnership.
(2) Video subscribers includes a DISH balance adjustment in the third quarter of 2013.

 

Note: As stated in our quarterly report for the period ended March 31, 2013, prior period revenue and certain operating statistics have been revised from the previously disclosed amounts to reflect the immaterial reclassification of certain revenues and the related impact on average monthly revenue per customer amounts.
 
 
             
 
Frontier Communications Corporation
Condensed Consolidated Balance Sheet Data
     
(Amounts in thousands)
 
September 30, 2013 December 31, 2012

ASSETS

Current assets:
Cash and cash equivalents $ 660,997 $ 1,326,532
Accounts receivable, net 472,223 533,704
Restricted cash 9,260 15,408
Other current assets   181,056   211,559
Total current assets 1,323,536 2,087,203
 
Restricted cash 11,612 27,252
Property, plant and equipment, net 7,289,567 7,504,896
Other assets - principally goodwill   7,868,699   8,114,280

Total assets

$ 16,493,414 $ 17,733,631
 

LIABILITIES AND EQUITY

Current liabilities:
Long-term debt due within one year $ 257,910 $ 560,550
Accounts payable and other current liabilities   866,981   992,970
Total current liabilities 1,124,891 1,553,520
 
Deferred income taxes and other liabilities 3,575,165 3,678,893
Long-term debt 7,887,296 8,381,947
Equity   3,906,062   4,119,271
Total liabilities and equity $ 16,493,414 $ 17,733,631
 
 
             
 
Frontier Communications Corporation
Consolidated Cash Flow Data
 
(Amounts in thousands)
For the nine months ended September 30,
2013 2012
 
Cash flows provided by (used in) operating activities:
Net income $ 47,723 $ 124,115
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense 887,225 962,763
Losses on early extinguishment of debt 159,780 71,063
Pension settlement costs 40,309 -
Pension/OPEB costs 22,558 24,220
Stock based compensation expense 12,561 12,950
Gain on sale of assets (14,601 ) -
Other non-cash adjustments 7,353 7,040
Deferred income taxes (43,310 ) 59,794
Change in accounts receivable 57,474 19,941
Change in accounts payable and other liabilities (91,322 ) (131,027 )
Change in other current assets   (10,409 )   9,426  
Net cash provided by operating activities 1,075,341 1,160,285
 
Cash flows provided from (used by) investing activities:
Capital expenditures - Business operations (484,082 ) (571,107 )
Capital expenditures - Integration activities - (38,768 )
Network expansion funded by Connect America Fund (21,042 ) (854 )
Grant funds received for network expansion from Connect
America Fund 5,998 47,986
Proceeds on sale of Mohave partnership interest 17,755 -
Cash transferred from escrow 21,788 47,356
Other assets purchased and distributions received, net   3,536     (12,251 )
Net cash used by investing activities (456,047 ) (527,638 )
 
Cash flows provided from (used by) financing activities:
Long-term debt borrowings 750,000 1,100,000
Financing costs paid (19,360 ) (22,754 )
Long-term debt payments (1,548,548 ) (571,472 )
Premium paid to retire debt (159,429 ) (52,560 )
Dividends paid (299,822 ) (299,547 )
Repayment of customer advances for construction,
distributions to noncontrolling interests and other   (7,670 )   (12,919 )
Net cash provided from (used by) financing activities (1,284,829 ) 140,748
 
(Decrease) increase in cash and cash equivalents (665,535 ) 773,395
Cash and cash equivalents at January 1,   1,326,532     326,094  
 
 
Cash and cash equivalents at September 30, $ 660,997   $ 1,099,489  
 
Cash paid during the period for:
Interest $ 493,427 $ 445,121
Income taxes $ 82,675 $ 4,093
 
Non-cash investing and financing activities:
Financing obligation for contribution of real property to pension plan $ 18,216 $ -
Reduction of pension obligation $ (18,216 ) $ -
 
 
                                Schedule A
Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures
 
For the quarter ended For the nine months ended September 30,
September 30, 2013 June 30, 2013 September 30, 2012
(Amounts in thousands) 2013 2012
 

Operating Income to Adjusted Operating Cash Flow to Free Cash Flow

 
Revenue $ 1,185,278 $ 1,190,533 $ 1,252,469 $ 3,581,207 $ 3,779,300
Less: Total operating expenses 979,106 938,978 977,273 2,872,656 3,027,862
Add: Gain on sale of Mohave partnership interest   -     14,601     -     14,601     -  
Operating income 206,172 266,156 275,196 723,152 751,438
 
Depreciation and amortization   285,701     297,849     298,416     887,225     962,763  
Operating cash flow 491,873 564,005 573,612 1,610,377 1,714,201
 
Add back:
Integration costs - - 4,458 - 68,204
Pension/OPEB costs (non-cash) (1) 13,950 3,590 (3,633 ) 22,558 24,220
Pension settlement costs (2) 40,309 - - 40,309 -
Severance costs 2,649 4,292 6,844 9,356 14,853
 
Subtract:
Gain on sale of Mohave partnership interest   -     14,601     -     14,601     -  
Adjusted operating cash flow 548,781 557,286 581,281 1,667,999 1,821,478
 
Add back:
Interest and dividend income 382 120 323 2,268 3,159
Stock based compensation 3,634 5,042 5,175 12,561 12,950
 
Subtract:
Cash paid (refunded) for income taxes (787 ) 82,515 4,301 82,675 4,093
Capital expenditures - Business operations (3) 157,560 137,513 195,034 484,082 571,107
Interest expense   163,835     166,547     172,188     501,802     509,104  
Free cash flow $ 232,189   $ 175,873   $ 215,256   $ 614,269   $ 753,283  
 
Operating income margin (Operating income divided by revenue)
As Reported 17.4 % 22.4 % 22.0 % 20.2 % 19.9 %
As Adjusted (4) 22.2 % 21.8 % 22.6 % 21.8 % 22.7 %
 
Operating cash flow margin (Operating cash flow divided by revenue)
As Reported 41.5 % 47.4 % 45.8 % 45.0 % 45.4 %
As Adjusted 46.3 % 46.8 % 46.4 % 46.6 % 48.2 %
 
 
(1) Reflects pension and other postretirement benefit (OPEB) expense, net of capitalized amounts, of $20.6 million, $20.5 million and $17.1 million for the quarters ended September 30, 2013, June 30, 2013 and September 30, 2012, respectively, less cash pension contributions and certain OPEB costs/payments of $6.6 million, $16.9 million and $20.8 million for the quarters ended September 30, 2013, June 30, 2013 and September 30, 2012, respectively. Reflects pension and OPEB expense, net of capitalized amounts, of $61.6 million and $49.5 million for the nine months ended September 30, 2013 and 2012, respectively, less cash pension contributions and certain OPEB costs/payments of $39.0 million and $25.3 million for the nine months ended September 30, 2013 and 2012, respectively.
(2) Reflects non-cash pension settlement charge of $40.3 million during the quarter and nine months ended September 30, 2013 for the accelerated recognition of a portion of the unrecognized acturial 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 integration costs, pension and OPEB costs (non-cash), pension settlement costs, severance costs and gain on sale of Mohave partnership interest.
 
 
                                     
Schedule B
Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures
 
 
(Amounts in thousands, except
per share amounts) For the quarter ended
September 30, 2013 June 30, 2013 September 30, 2012
 

Net income (loss) attributable to common

Earnings Per Share Net Income (Loss) Earnings (Loss) Per Share Earnings Per Share

shareholders of Frontier

Net Income Net Income
 
GAAP, as reported $ 35,400 $ 0.04 $ (38,460 ) $ (0.04 ) $ 67,000 $ 0.07
Pension settlement costs 24,992 0.02 - - - -
Losses on early extinguishment of debt - - 98,888 0.10 154 -
Gain on sale of Mohave partnership interest - - (8,591 ) (0.01 ) - -
Gain on investment in Adelphia - - (94 ) - 9 -
Integration costs - - - - 2,711 -
Severance costs 1,626 - 2,756 - 4,242 -
Discrete tax items (1)   (5,557 )   (0.01 )   6,800     0.01     (5,667 )   (0.01 )
Non-GAAP, as adjusted (2) $ 56,461   $ 0.06   $ 61,299   $ 0.06   $ 68,449   $ 0.07  
 
 
For the nine months ended
September 30, 2013 September 30, 2012
 

Net income (loss) attributable to common

Earnings Per Share Earnings Per Share

shareholders of Frontier

Net Income   Net Income  
 
GAAP, as reported $ 45,080 $ 0.04 $ 111,757 $ 0.11
Pension settlement costs 24,992 0.02 - -
Losses on early extinguishment of debt 98,888 0.10 44,628 0.05
Gain on sale of Mohave partnership interest (8,591 ) (0.01 ) - -
Gain on investment in Adelphia (889 ) - (6,072 ) (0.01 )
Integration costs - - 42,348 0.04
Severance costs 5,864 0.01 9,222 0.01
Discrete tax items (1)   1,243     -     (5,667 )   (0.01 )
Non-GAAP, as adjusted (2) $ 166,587   $ 0.17   $ 196,216   $ 0.20  
 
 

(1)

Includes impact arising from state law changes, the net reversal of uncertain tax positions, changes in certain deferred tax balances and the settlement of IRS audit.

(2)

Non-GAAP, as adjusted may not sum due to rounding.
 
 




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