- Adjusted EBITDA1 of $966 million and
net loss of $80 million in the fourth quarter
- Full-year adjusted free cash flow2 of
$921 million, with full year net cash provided by operating
activities of $1,666 million
- Fourth quarter results impacted by
resolution of non-paying acquired CTF accounts
- Improved trend in broadband in both
Legacy and CTF markets, excluding impact of non-paying account
resolution
- Increased annualized cost synergy
target to $1.6 billion, with $1.25 billion to be realized by end of
Q1 2017, and $1.6 billion by end of Q2 2018
- Amended April 2021 term loan and
revolver to provide more flexible terms, and upsized and extended
revolver
- Board of Directors approved and will
recommend to stockholders a reverse stock split
- Dividend payout ratio3 of 52% in
2016
- Provides 2017 guidance for adjusted
free cash flow, capital expenditures, and cash taxes
Frontier Communications Corporation (NASDAQ:FTR) today reported
its fourth quarter and full year 2016 results and provided an
update on its progress with its wireline properties acquired from
Verizon in California, Texas, and Florida.
Dan McCarthy, President and CEO, stated, “During the quarter we
made significant progress in positioning our company to deliver a
better customer experience and improved financial performance, with
greater financial flexibility. Our reorganization into separate
Commercial and Consumer business units will result in a more
customer-centric approach, while reducing expenses and enabling
more efficient capital deployment. We now expect annualized cost
synergies of $1.6 billion to be achieved by mid-year 2018, up from
the $1.4 billion target outlined in the 2016 third quarter earnings
report, and a full year earlier than anticipated. We expect $1.25
billion of the $1.6 billion in synergies will be achieved by the
end of the first quarter of 2017, which is a quarter earlier than
previously announced.”
___________________________
1 See “Non-GAAP Measures” for a description of this measure and its
calculation, and Schedule A for a reconciliation to net loss. 2
Adjusted free cash flow is a non-GAAP measure of liquidity derived
from net cash provided from operating activities. See “Non-GAAP
Measures” for a description of this measure and its calculation,
and Schedule A for a reconciliation to net cash provided from
operating activities. 3 Dividend payout ratio is a non-GAAP measure
of liquidity derived from dividends paid on common stock (as
adjusted) and adjusted free cash flow (see Note 2, above). See
“Non-GAAP Measures” for a description of this measure and its
calculation, and Schedule C for a reconciliation to the $493
million of dividends paid on common stock in 2016 and Schedule A
for the $1,666 million of net cash provided from operating
activities in 2016.
Mr. McCarthy continued: “Results for the fourth quarter were
impacted by our intensified efforts to resolve acquired accounts in
California, Texas and Florida that we have determined to be
non-paying. This process is almost complete, and we expect to
return to a normalized trend by the start of the second quarter. I
am pleased that underlying CTF customer trends improved in Q4 and
continue to improve in Q1.”
McCarthy continued, “We are taking action to adapt our
organization to the opportunities created by the increased scale
and scope we recently acquired, to invest wisely in the business,
and to improve our financial flexibility. We remain committed to
delivering shareholder value going forward, by improving revenue
trends and managing expenses to provide healthy free cash flow and
maintain our quarterly common dividend through a sustainable payout
ratio.”
Financial Highlights for the Fourth
Quarter 2016
- Revenue of $2,409 million
- Operating income of $255 million;
operating margin of 10.6%
- Net loss attributable to common
shareholders of $133 million, or ($0.12) per share, and net loss of
$80 million
- Adjusted EBITDA4 of $966 million;
Adjusted EBITDA margin5 of 40.0%
- Net cash provided from operating
activities of $714 million
- Adjusted free cash flow6 of $316
million
___________________________
4 See Note 1, above. 5 Adjusted EBITDA margin is a non-GAAP measure
of performance, calculated as Adjusted EBITDA, divided by total
revenue. See Schedule A for a reconciliation to net loss.
6 See Note 2, above.
Revenues
For the quarter
ended
December 31, 2016
September 30, 2016
($ in
millions)
ConsolidatedAmount
CTFOperations
FrontierLegacy
ConsolidatedAmount
CTFOperations
FrontierLegacy
Total
revenue
$2,409
$1,128
$1,281
$2,524
$1,212
$1,312
Revenues for the fourth quarter were $2,409 million, compared to
$2,524 million in the third quarter. Approximately $45 million of
the sequential decline in revenue was related to resolution of CTF
accounts that were determined to be non-paying following an
intensified effort to address overdue accounts. Frontier began the
normal process of addressing overdue accounts in the CTF markets in
July 2016, following completion of the cutover. The resolution of
those overdue accounts accelerated to an above-normal pace during
the fourth quarter.
Frontier anticipates that the impact of this resolution process
will decline to approximately $25 million in the first quarter of
2017. This initiative is nearly complete and Frontier expects to be
processing overdue accounts in a normal manner before the end of
the first quarter.
Fourth-quarter revenue trends in Legacy reflect some disruption
from the integration activity underway in the third quarter. Legacy
sales trends began to improve in the last month of the fourth
quarter.
Customers
As of and for the quarter ended December
31, 2016 September 30, 2016
Residential customer
metrics: Customers (in thousands) 4,891 5,035
Average monthly residential revenue per customer $80.33 $82.34
Customer monthly churn 2.08% 2.08%
Business customer
metrics: Customers (in thousands) 502 516 Average monthly
business revenue per customer $665.04 $668.30
Broadband
subscribers (in thousands) 4,271 4,362
Video subscribers (in
thousands) 1,419 1,503
Operating Expenses
Frontier reduced total operating expenses in the fourth quarter
of 2016 by $106 million, or 4.7%, to $2,154 million from $2,260
million in the third quarter. Frontier reduced adjusted operating
expenses7 in the fourth quarter of 2016 by $82 million, or 5.4%, to
$1,443 million from $1,525 million in the third quarter.
Acquisition and integration expenses for the fourth quarter of 2016
were $49 million, as compared with $122 million in the third
quarter.
___________________________
7 Adjusted operating expenses is a
non-GAAP measure of performance derived from total operating
expenses. See “Non-GAAP Measures” for a description of this measure
and its calculation, and Schedule C for a reconciliation to total
operating expenses.
Cash Flow
Net cash provided from operating activities was $1,666 million
for full-year 2016. Adjusted free cash flow8 was $921 million for
full-year 2016, achieving Frontier’s guidance target. Frontier’s
dividend payout ratio9 was 39% in the fourth quarter of 2016,
reduced from the 74% dividend payout ratio in the third quarter.
For the full-year 2016, the dividend payout ratio was 52%.
___________________________
8 See Note 2, above. 9 See Note 3, above.
Guidance
For the full year 2017, Frontier expects:
- Adjusted free cash flow – $800 million
to $1.0 billion
- Capital expenditures – $1.0 billion to
$1.25 billion
- Integration – operating expense less
than $50 million; capital expenditures less than $50 million
- Cash taxes – $0 to $50 million
Amendment of Credit Facilities
Frontier also announced that it amended its April 2021 term loan
and revolving credit facilities on February 27, 2017, combining
them into a single credit agreement. The amendments provide
Frontier with more flexible terms, upsize the revolver to $850
million, extend it from 2018 to 2022, and unify the covenants for
the April 2021 term loan and the revolver. Pricing remains
unchanged. The most significant change in the covenants is an
increase of the maximum Leverage Ratio (as defined) to the
following levels:
Maximum Leverage Ratio Starting 5.25:1
Now 5.0:1 Second quarter 2018 4.75:1 Second
quarter 2019 4.5:1 Second quarter 2020
In addition, the enhanced security package that Frontier will be
providing will expand Frontier’s capital market access, which will
enable Frontier to reduce its cost of capital and improve free cash
flow.
Perley McBride, Frontier’s Executive Vice President and Chief
Financial Officer, commented: “These amendments significantly
improve and solidify Frontier’s finance picture, and provide us
with additional flexibility as we transition to normalized
operations in the acquired CTF properties over the coming
quarters.”
Reverse Stock Split Proposal
Frontier also announced that its Board of Directors has approved
and will place before Frontier’s stockholders at the May 2017
Annual Meeting a charter amendment for a reverse stock split of
Frontier Communications common stock. The charter amendment will
provide for a reverse stock split ratio between 1-for-10 and
1-for-25, with the Board designating the final ratio within 90 days
after the charter amendment is approved by stockholders. Concurrent
with the reverse stock split, the conversion ratio of Frontier’s
Series A 11.125% Mandatory Convertible Preferred Stock will
automatically be adjusted proportionately.
Non-GAAP Measures
Frontier uses certain non-GAAP financial measures in evaluating
its performance, including EBITDA, EBITDA margin, adjusted EBITDA,
adjusted EBITDA margin, free cash flow, adjusted free cash flow,
adjusted operating expenses, adjusted net income, and dividend
payout ratio, each of which is described below. Management uses
these non-GAAP financial measures internally to (i) assist in
analyzing Frontier's underlying financial performance from period
to period, (ii) analyze and evaluate strategic and operational
decisions, (iii) establish criteria for compensation decisions, and
(iv) assist in the understanding of Frontier's ability to generate
cash flow and, as a result, to plan for future capital and
operational decisions. We believe that the presentation of these
non-GAAP financial measures provides useful information to
investors regarding our financial condition and results of
operations because these measures, when used in conjunction with
related GAAP financial measures (i) provide a more comprehensive
view of our 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) present measurements that investors
and rating agencies have indicated to management are useful to them
in assessing Frontier and its results of operations.
A reconciliation of these measures to the most comparable
financial measures calculated and presented in accordance with GAAP
is included in the accompanying tables. These non-GAAP financial
measures are not measures of financial performance or liquidity
under GAAP, nor are they alternatives to GAAP measures and they may
not be comparable to similarly titled measures of other
companies.
EBITDA is defined as net income (loss) less income tax expense
(benefit), investment and other income, interest expense and
depreciation and amortization. EBITDA margin is calculated by
dividing EBITDA by total revenues.
Adjusted EBITDA is defined as EBITDA, as described above,
adjusted to exclude acquisition and integration costs, non-cash
pension/OPEB costs, and restructuring costs and other charges.
Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by
total revenues.
Management uses EBITDA, EBITDA margin, adjusted EBITDA and
adjusted EBITDA margin to assist it in comparing performance from
period to period and as measures of operational performance. We
believe that these non-GAAP measures provide useful information for
investors in evaluating our operational performance from period to
period because they exclude depreciation and amortization expenses
related to investments made in prior periods and are determined
without regard to capital structure or investment activities. By
excluding capital expenditures, debt repayments and dividends,
these non-GAAP financial measures have certain shortcomings.
Management compensates for these shortcomings by utilizing these
non-GAAP financial measures in conjunction with the comparable GAAP
financial measures.
Adjusted net income (loss) attributable to Frontier common
shareholders is defined as net income (loss) attributable to
Frontier common shareholders and excludes acquisition and
integration costs, certain income tax items, restructuring costs
and other charges, and the income tax effect of these items.
Adjustments have also been made to exclude the financing costs and
related income tax effects associated with the Verizon Acquisition,
including interest expense and preferred dividends prior to our
ownership of the CTF Operations. Adjusting for these items allows
investors to better understand and analyze our financial
performance over the periods presented.
Free Cash Flow, as used by management in the operation of its
business, is defined as net cash provided from operating activities
less capital expenditures for business operations and preferred
dividends. In determining free cash flow, further adjustments are
made to add back acquisition and integration costs, and interest
expense on commitment fees, which provides a better comparison of
our core operations from period to period. Changes in working
capital accounts are excluded from this calculation due to
seasonality and specific timing of cash receipts and disbursements
between various reporting periods.
Adjusted Free Cash Flow is defined as free cash flow, as
described above and adding back interest expense on incremental
debt and dividends paid, prior to our ownership of the CTF
Operations, on debt incurred and on preferred stock issued to
finance the Verizon Acquisition.
Management uses Free Cash Flow and Adjusted Free Cash Flow to
assist it in comparing performance and liquidity from period to
period and to obtain a more comprehensive view of our core
operations and ability to generate cash flow. We believe that these
non-GAAP measures are useful to investors in evaluating cash
available to service debt and pay dividends. In addition, we
believe that Adjusted Free Cash Flow provides a useful comparison
from period to period because it excludes the impact of financing
raised in connection with the Verizon Acquisition during periods
prior to our ownership of the CTF Operations. These non-GAAP
financial measures have certain shortcomings; they do not represent
the residual cash flow available for discretionary expenditures,
since items such as debt repayments, changes in working capital and
common stock dividends are not deducted in determining such
measures. Management compensates for these shortcomings by
utilizing these non-GAAP financial measures in conjunction with the
comparable GAAP financial measures.
Dividend Payout Ratio is calculated by dividing the dividends
paid on common stock (as adjusted) by adjusted free cash flow.
Dividends paid on common stock has been adjusted to exclude
dividends paid on common stock issued in June 2015, from the date
of issuance until April 1, 2016, when the proceeds of the issuance
were used in the Verizon Acquisition that generated adjusted free
cash flow from that date, which we believe provides a useful
comparison from period to period. Management uses the dividend
payout ratio as a metric to indicate how much money Frontier is
returning to our shareholders.
Adjusted Operating Expenses is defined as operating expenses
adjusted to exclude depreciation and amortization, acquisition and
integration costs, non-cash pension/OPEB costs, and restructuring
costs and other charges. Investors have indicated that this
non-GAAP measure is useful in evaluating Frontier’s
performance.
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
We 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, Frontier furnished today, on a Current Report on Form
8-K, additional materials regarding full year and fourth quarter
2016 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
from 8 P.M. Eastern time on February 27, 2017 through 8 P.M.
Eastern time on March 4, 2017, 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 7061163 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) is a leader in
providing communications services to urban, suburban, and rural
communities in 29 states. Frontier offers a variety of services to
residential customers over its fiber-optic and copper networks,
including video, high-speed internet, advanced voice, and Frontier
Secure® digital protection solutions. Frontier’s video offerings
include Frontier FiOS® and Vantage TV by Frontier™ with
100 percent HD picture quality, Total Home DVR, instant
channel change, enhanced search, Video on Demand, and much more.
Business Edge™ offers communications solutions to small, medium,
and enterprise businesses. More information about Frontier is
available at www.frontier.com.
Forward-Looking Statements
This earnings release 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: competition from cable, wireless and wireline
carriers, satellite, and OTT companies, 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; our
ability to implement successfully our organizational structure
changes; risks related to the operation of properties acquired from
Verizon, including our ability to retain or obtain customers in
those markets, our ability to realize anticipated cost savings, and
our ability to meet commitments made in connection with the
acquisition; reductions in revenue from our voice customers that we
cannot offset with increases in revenue from broadband and video
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 and preferred 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 2017 and beyond; adverse changes in the credit markets;
adverse changes in the ratings given to our debt securities by
nationally accredited ratings organizations; the availability and
cost of financing in the credit markets; covenants in our
indentures and credit agreements that may limit our operational and
financial flexibility; 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
risks and other factors contained in our filings with the U.S.
Securities and Exchange Commission, including our reports on Forms
10-K and 10-Q. Any of the foregoing events, or other events, could
cause our results to vary from management’s forward-looking
statements included in this earnings release. These risks and
uncertainties may cause our actual future results to be materially
different than those expressed in our forward-looking statements.
We have no obligation to update or revise these forward-looking
statements and do not undertake to do so.
Frontier Communications
Corporation
Consolidated Financial Data
For the quarter ended For the year ended
December 31,
September 30, December 31, December 31,
($ in millions and
shares in thousands, except per share amounts)
2016 2016 2015 2016 2015
Statement of Operations Data
Revenue $ 2,409 $ 2,524 $ 1,413 $ 8,896 $ 5,576 Operating
expenses: Network access expenses 417 440 165 1,470 640 Network
related expenses 488 527 318 1,887 1,287 Selling, general and
administrative expenses 558 582 343 2,093 1,346 Depreciation and
amortization 562 578 319 2,031 1,320 Acquisition and integration
costs 49 122 86 436 236 Restructuring costs and other charges
80 11 - 91 2 Total operating expenses
2,154 2,260 1,231 8,008 4,831
Operating income 255 264 182 888 745 Investment and other
income (loss), net 13 (4) 4 20 7 Interest expense 386
386 362 1,531 1,113 Loss before income
taxes (118) (126) (176) (623) (361) Income tax benefit (38)
(46) (73) (250) (165)
Net
loss (80) (80) (103) (373) (196) Less: Dividends on
preferred stock 53 54 53 214 120
Net loss attributable to
Frontier
common shareholders $ (133) $ (134) $
(156) $ (587) $ (316) Weighted average shares outstanding -
basic and diluted 1,164,085 1,164,172 1,161,148 1,164,099 1,084,606
Basic and diluted net loss per common share $ (0.12)
$ (0.12) $ (0.14) $ (0.51) $ (0.29)
Other
Financial Data: Capital expenditures - Business operations $
299 $ 403 $ 185 $ 1,259 $ 710 Capital expenditures - Integration
activities 43 11 52 142 153 Dividends paid - Common Stock 123 124
123 493 456 Dividends paid - Preferred Stock 53 54 53 214 120
Frontier Communications
Corporation
Consolidated Financial Data
For the quarter ended December 31, 2016 September 30,
2016 Consolidated CTF Frontier Consolidated CTF Frontier December
31,
($ in
millions)
Amount Operations Legacy Amount Operations
Legacy 2015
Selected Statement of
Operations Data Revenue: Voice services $ 774 $ 339 $
435 $ 809 $ 359 $ 450 $ 482 Data and internet services 1,013 439
574 1,045 464 581 589 Video services 365 300 65 392 327 65 71 Other
58 (2) 60 73 8 65
65 Customer revenue 2,210 1,076 1,134 2,319 1,158 1,161
1,207 Switched access and subsidy 199 52 147
205 54 151 206 Total revenue $
2,409 $ 1,128 $ 1,281 $ 2,524 $ 1,212 $ 1,312 $ 1,413
Other Financial Data Revenue: Residential $ 1,196 $
637 $ 559 $ 1,272 $ 702 $ 570 $ 594 Business 1,014
439 575 1,047 456 591 613
Customer revenue 2,210 1,076 1,134 2,319 1,158 1,161 1,207 Switched
access and subsidy 199 52 147 205
54 151 206 Total revenue $ 2,409 $
1,128 $ 1,281 $ 2,524 $ 1,212 $ 1,312 $ 1,413
Operating Expenses Network access expenses $ 417 $ 268 $ 149
$ 440 $ 286 $ 154 $ 165 Network related expenses 488 199 289 527
206 321 318 Selling, general and administrative expenses 558 246
312 582 245 337 343 Acquisition and integration costs 49 - 49 122 -
122 86 Restructuring costs and other charges 80 26
54 11 8 3 - Cost and expenses
(exclusive of depreciation and amortization) 1,592 739 853 1,682
745 937 912 Depreciation and amortization 562 261
301 578 277 301 319
Total Operating Expenses $ 2,154 $ 1,000 $ 1,154 $ 2,260 $
1,022 $ 1,238 $ 1,231
Frontier Communications Corporation
Consolidated Financial Data For the year ended
December 31, 2016 Consolidated CTF Frontier December 31,
($ in
millions)
Amount Operations (1) Legacy 2015
Selected Statement
of Operations Data Revenue: Voice services $
2,886 $ 1,077 $ 1,809 $ 2,022 Data and internet services 3,693
1,366 2,327 2,337 Video services 1,244 978 266 285 Other 276
26 250 255 Customer revenue 8,099 3,447 4,652
4,899 Switched access and subsidy 797 175 622
677 Total revenue $ 8,896 $ 3,622 $ 5,274 $ 5,576
Other Financial Data Revenue: Residential $ 4,383 $
2,092 $ 2,291 $ 2,432 Business 3,716 1,355
2,361 2,467 Customer revenue 8,099 3,447 4,652 4,899
Switched access and subsidy 797 175 622
677 Total revenue $ 8,896 $ 3,622 $ 5,274 $ 5,576
Operating Expenses Network access expenses $ 1,470 $ 852 $
618 $ 640 Network related expenses 1,887 623 1,264 1,287 Selling,
general and administrative expenses 2,093 731 1,362 1,346
Acquisition and integration costs 436 - 436 236 Restructuring costs
and other charges 91 34 57 2 Cost and
expenses (exclusive of depreciation 5,977 2,240 3,737 3,511 and
amortization) Depreciation and amortization 2,031 800
1,231 1,320
Total Operating Expenses $ 8,008 $
3,040 $ 4,968 $ 4,831 (1) Includes operating results
of the CTF Operations for the nine month period since April 1,
2016, the date of the CTF Acquisition.
Frontier Communications
Corporation
Consolidated Financial and Operating Data For the
quarter ended For the year ended December 31, September 30,
December 31, December 31, 2016 2016 2015 2016 2015
Customers (in thousands) 5,393 (1) 5,551 (1) 3,413 5,393 (1)
3,413
Residential customer metrics: Customers (in thousands)
4,891 (1) 5,035 (1) 3,124 4,891 (1) 3,124 Average monthly
residential revenue per customer $ 80.33 $ 82.34 $ 63.14 $ 77.47 $
63.93 Customer monthly churn 2.08% 2.08% 1.76% 1.98% 1.82%
Business customer metrics: Customers (in thousands) 502 (1)
516 (1) 289 502 (1) 289 Average monthly business revenue per
customer $ 665.04 $ 668.30 $ 700.03 $ 673.72 $ 690.88
Employees 28,332 30,358 19,160 28,332 19,160
Broadband
subscribers (in thousands) 4,271 (2) 4,362 (2) 2,462 4,271 (2)
2,462
Video subscribers (in thousands) 1,419 (2) 1,503 (2)
554 1,419 (2) 554
(1)
2,283,000 residential customers, 250,000 business customers
and 2,533,000 total customers were acquired at the time of the
April 2016 CTF Acquisition.
(2)
2,052,000 broadband subscribers and 1,165,000 video subscribers
were acquired at the time of the April 2016 CTF Acquisition.
Frontier Communications
Corporation
Condensed Consolidated Balance Sheet
Data
($ in
millions)
December 31, 2016 December 31, 2015
ASSETS
Current assets: Cash and cash equivalents $ 522 $ 936 Accounts
receivable, net 938 571 Restricted cash - 8,444 Other current
assets 196 180 Total current assets 1,656 10,131
Property, plant and equipment, net 14,902 8,493 Other assets
- principally goodwill 12,455 8,460 Total assets $
29,013 $ 27,084
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 363 $ 384
Accounts payable and other current liabilities 2,081
1,509 Total current liabilities 2,444 1,893 Deferred income
taxes and other liabilities 4,490 4,069 Long-term debt 17,560
15,508 Equity 4,519 5,614
Total liabilities and equity $ 29,013 $ 27,084
Frontier Communications Corporation
Consolidated Cash Flow Data For the year ended
December 31,
($ in
millions)
2016 2015
Cash flows provided from (used by) operating
activities: Net loss $ (373) $ (196) Adjustments to reconcile
net loss to net cash provided from operating activities:
Depreciation and amortization 2,031 1,320 Loss on debt exchanges 7
- Pension/OPEB costs 79 10 Special termination benefits 26 - Stock
based compensation expense 24 27 Amortization of deferred financing
costs 46 191 Other non-cash adjustments (12) Deferred income taxes
(206) (167) Change in accounts receivable (19) 62 Change in
accounts payable and other liabilities (22) 102 Change in other
current assets 85 (48)
Net cash provided from
operating activities 1,666 1,301
Cash flows provided
from (used by) investing activities: Cash paid for CTF
Acquisition (9,871) - Capital expenditures - Business operations
(1,259) (710) Capital expenditures - Integration activities (142)
(153) Network expansion funded by Connect America Fund - Phase 1 -
(22) Proceeds on sale of assets 8 22 Cash paid for an acquisition,
net of cash acquired - (17) Other 5 2
Net cash
used by investing activities (11,259) (878)
Cash
flows provided from (used by) financing activities: Proceeds
from long-term debt borrowings 1,940 6,603 Financing costs paid
(39) (119) Long-term debt payments (453) (298) Proceeds from
issuance of common stock, net - 799 Proceeds from issuance of
preferred stock, net - 1,866 Dividends paid on common stock (493)
(456) Dividends paid on preferred stock (214) (120) Other
(6) -
Net cash provided from financing activities 735
8,275 Increase/(Decrease) in cash, cash equivalents, and
restricted cash (8,858) 8,698 Cash, cash equivalents, and
restricted cash at January 1, 9,380 682
Cash, cash equivalents, and restricted cash at December 31,
$ 522 $ 9,380
Supplemental cash flow information:
Cash paid (received) during the period for: Interest $ 1,467
$ 728 Income taxes (refunds), net $ (120) $ 28
Non-cash
investing and financing activities: Financing obligation for
contributions of real property to pension plan $ 15 $ - Reduction
of pension obligation $ 15 $ - Increase (decrease) in capital
expenditures due to changes in accounts payable $ (60) $ (56)
Conversion of operating leases to capital leases $ 111 $ -
Schedule A
Frontier Communications Corporation Reconciliation of
Non-GAAP Financial Measures For the quarter ended For
the year ended December 31, September 30, December 31, December 31,
($ in
millions)
2016 2016 2015 2016 2015
EBITDA
Net Loss $ (80) $ (80) $ (103) $ (373) $ (196) Add back (subtract):
Income tax benefit (38) (46) (73) (250) (165) Interest expense 386
386 362 1,531 1,113 Investment and other income (loss), net
(13) 4 (4) (20) (7) Operating income
255 264 182 888 745 Depreciation and amortization 562
578 319 2,031 1,320
EBITDA
817 842 501 2,919 2,065
Add back: Acquisition and integration costs 49 122 86 436 236
Pension/OPEB costs (non-cash) (1) 20 24 13 79 10 Restructuring
costs and other charges 80 11 - 91
2
Adjusted EBITDA $ 966 $
999 $ 600 $ 3,525 $
2,313 EBITDA margin 33.9% 33.4% 35.4% 32.8% 37.0%
Adjusted EBITDA margin 40.0% 39.6% 42.5% 39.6% 41.5%
Free Cash
Flow
Net cash provided from (used by) operating activities $ 714 $ 321 $
341 $ 1,666 $ 1,301 Add back (subtract): Capital expenditures -
Business operations (299) (403) (185) (1,259) (710) Acquisition and
integration costs 49 122 86 436 236 Deferred income taxes 43 (8) 4
206 167 Income tax benefit (38) (46) (73) (250) (165) Dividends on
preferred stock (53) (54) (53) (214) (120) Non-cash (gains)/losses,
net (58) (38) (18) (176) (228) Changes in current assets and
liabilities (230) 230 (111) (44) (116) Pension/OPEB costs
(non-cash) (1) 20 24 13 79 10 Cash (paid) refunded for income taxes
85 3 - 120 (28) Restructuring costs and other charges 80 11 - 91 2
Stock based compensation 3 6 8 24 27 Interest expense - commitment
fees(2) - - - 10 184
Free
cash flow $ 316 $ 168 $
12 $ 689 $ 560 Dividends on
preferred stock - - 53 54 120 Incremental interest on new debt
- - 178 178 189
Adjusted free
cash flow $ 316 $ 168 $
243 $ 921 $ 869
(1)
Reflects pension and other postretirement benefit (OPEB)
expense, net of capitalized amounts, of $27 million, $27 million
and $18 million for the quarters ended December 31, 2016, September
30, 2016 and December 31, 2015, respectively, less cash pension
contributions and certain OPEB costs/payments of $7 million, $3
million and $5 million for the quarters ended December 31, 2016,
September 30, 2016 and December 31, 2015, respectively. Reflects
pension and OPEB expense, net of capitalized amounts, of $104
million and $75 million for the years ended December 31, 2016 and
2015, respectively, less cash pension contributions and certain
OPEB costs/payments of $25 million and $65 million for the years
ended December 31, 2016 and 2015, respectively.
(2)
Includes interest expense of $10 million and $184 million for the
years ended December 31, 2016 and 2015, respectively, related to
commitment fees on bridge loan facilities.
Schedule B
Frontier Communications Corporation
Reconciliation of Non-GAAP Financial
Measures
For the
quarter ended December 31, 2016 September 30, 2016 December 31,
2015
($ in millions,
except per share amounts)
Net Income (Loss)
Basic Earnings(Loss) Per Share
Net Income (Loss)
Basic Earnings (Loss)Per Share
Net Income(Loss)
Basic Earnings(Loss) Per Share
Net loss attributable to Frontier common shareholders
$ (133) $ (0.12) $ (134) $ (0.12) $ (156) $ (0.14)
Acquisition and integration costs 49 122 86 Acquisition related
interest expense (1) - - 189 Restructuring costs and other charges
80 11 - Certain other tax items (2) (17) 3 7 Income tax effect on
above items: Acquisition and integration costs (1) (48) (39)
Acquisition related interest expense 7 - (84) Restructuring costs
and other charges (28) (4)
- 90 0.08 84 0.07 159 0.14 Dividends on
preferred stock - - - - 53
0.05 Adjusted net income (loss) attributable to
Frontier common shareholders(3) $ (43) $ (0.04) $ (50) $ (0.04) $
56 $ 0.05 For the year ended December 31, 2016 December 31,
2015 Net Income (Loss)
Basic Earnings(Loss) Per Share
Net Income (Loss)
Basic Earnings(Loss) Per Share
Net loss attributable to Frontier common shareholders $
(587) $ (0.51) $ (316) $ (0.29) Acquisition and integration
costs 436 236 Acquisition related interest expense (1) 188 373
Restructuring costs and other charges 91 2 Certain other tax items
(2) (31) (8) Income tax effect on above items: Acquisition and
integration costs (153) (103) Acquisition related interest expense
(66) (163) Restructuring costs and other charges (32)
(1) 433 0.37 336 0.31 Dividends on
preferred stock 54 0.05 120 0.11
Adjusted net income (loss) attributable to Frontier common
shareholders(3) $ (100) $ (0.09) $ 140 $ 0.13
(1)
Represents interest expense related to commitment fees on
bridge loan facilities in connection with the CTF Acquisition. Also
includes interest expense related to the September 2015 private
debt offering in connection with financing the CTF Acquisition.
(2)
Includes impact arising from federal research and development
credits, the domestic production activities deduction, changes in
certain deferred tax balances, state tax law changes, state filing
method change, non-deductible transaction costs, and the net impact
of uncertain tax positions.
(3)
Adjusted net income (loss) attributable to Frontier common
shareholders may not sum due to rounding.
Schedule C
Frontier Communications Corporation
Reconciliation of Non-GAAP Financial
Measures
For the quarter ended December 31, 2016 September 30, 2016
Consolidated CTF Frontier Consolidated CTF Frontier
December 31,
($ in
millions)
Amount Operations Legacy Amount Operations Legacy 2015
Adjusted Operating
Expenses
Total operating expenses $ 2,154
$ 1,000 $ 1,154 $ 2,260
$ 1,022 $ 1,238 $ 1,231
Subtract: Depreciation and amortization 562 261 301 578 277
301 319 Acquisition and integration costs 49 - 49 122 - 122 86
Pension/OPEB costs (non-cash) 20 5 15 24 11 13 13 Restructuring
costs and other charges 80 26 54 11
8 3 -
Adjusted operating expenses
$ 1,443 $ 708 $ 735
$ 1,525 $ 726 $ 799
$ 813 For the year ended December 31,
2016 Consolidated CTF Frontier December 31, Amount Operations
Legacy 2015
Adjusted Operating
Expenses
Total operating expenses $ 8,008
$ 3,040 $ 4,968 $ 4,831
Subtract: Depreciation and amortization 2,031 800 1,231
1,320 Acquisition and integration costs 436 - 436 236 Pension/OPEB
costs (non-cash) 79 17 62 10 Restructuring costs and other charges
91 34 57 2
Adjusted operating
expenses $ 5,371 $ 2,189 $
3,182 $ 3,263 For the quarter
ended
For the year ended
December 31, September 30, December 31, December 31,
Dividend Payout
Ratio
2016 2016 2015 2016 2015 Numerator Dividends paid on common
stock $ 123 $ 124 $ 123 $ 493 $ 456 Less: Dividends on June 2015
common stock issuance - - (17) (18)
(34)
$ 123 $ 124 $
106 $ 475 $ 422
Denominator Free cash flow (see Schedule A) $ 316 $ 168 $ 12 $ 689
$ 560 Dividends on preferred stock - - 53 54 120 Incremental
interest expense - - 178 178 189
Adjusted free cash flow $ 316 $
168 $ 243 $ 921 $
869 Dividend payout ratio 39%
74% 43% 52% 49%
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version on businesswire.com: http://www.businesswire.com/news/home/20170227006512/en/
Frontier Communications CorporationInvestor:Luke Szymczak, (203) 614-5044VP, Investor
Relationsluke.szymczak@ftr.comorMEDIA:Peter DePasquale, (203) 614-5097VP,
Corporate Communicationspeter.depasquale@ftr.com
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