- 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
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 PerShare
Net Income
Earnings PerShare
Net Income
Earnings PerShare
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 PerShare
Net Income
Earnings PerShare
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 CorporationInvestors:Luke Szymczak,
203-614-5044Vice President, Investor Relationsluke.szymczak@FTR.comorMedia:Brigid Smith,
203-614-5042AVP, Corporate Communicationsbrigid.smith@FTR.com
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