Market Overview

Frontier Communications Reports 2018 Second Quarter Results

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Second Quarter

  • Total revenue of $2.16 billion
  • Continued progress toward improving subscriber trends, offset by
    typical summer seasonality
  • Successfully concluded the $350 million synergy program on schedule
  • Next phase of transformation initiatives target $500 million EBITDA
    benefit by year-end 2020
  • Net loss of $18 million
  • Adjusted EBITDA1 of $884 million

Frontier Communications Corporation (NASDAQ:FTR) today reported
financial results for the second quarter ended June 30, 2018.

"We continued to make further progress in the second quarter with the
key initiatives that we have underway across the company," said Dan
McCarthy, President and CEO. "We are pleased to have maintained good
subscriber momentum despite facing typical second-quarter seasonal
headwinds. Underlying trends should continue improving in the latter
half of this year, once summer seasonality is behind us. I am also
pleased that our efforts in Commercial have begun to drive improved
revenue trends."

"We successfully concluded our $350 million synergy program in the
second quarter," said McCarthy. "We have begun our next phase of
corporate transformation, which entails both revenue enhancement and
productivity improvement initiatives with targeted EBITDA benefits of
$500 million by year-end 2020. The entire Frontier team remains focused
on enhancing the customer experience, achieving further improvements in
churn and subscriber trends, maintaining strong cash flow, strengthening
the balance sheet, and improving shareholder value."

______________________________

1 See "Non-GAAP Measures" for a description of this
measure and its calculation. See Schedule A for a reconciliation to
net income/(loss).
 

Consolidated Results

Consolidated revenue for the second quarter 2018 was $2.16 billion.
Within consolidated revenue, consumer revenue was $1.10 billion,
commercial revenue was $970 million, and subsidy and other regulatory
revenue was $97 million.

Net loss for the second quarter of 2018 was $18 million. Net loss for
the second quarter attributable to common shares was $72 million, for a
diluted net loss per common share of $0.92. Adjusted EBITDA totaled $884
million, for an adjusted EBITDA margin2 of 40.9%.

The Company successfully completed its program to attain $350 million in
annualized cost synergies in the second quarter, in line with its stated
target.

For the second quarter of 2018, net cash provided from operating
activities was $672 million and operating free cash flow3 was
$351 million. Over the four-quarter period ending June 30, 2018, net
cash provided from operating activities was $1,944 million and operating
free cash flow was $721 million.

Consumer Business Highlights

  • Revenue of $1.10 billion.
  • Customer churn of 1.95% (1.76% for Legacy and 2.25% for CTF
    operations) reflected the impact of summer seasonality.
  • Average Revenue Per Customer (ARPC) of $85.28 ($83.17 excluding
    adoption of ASC 606, stable sequentially).

Commercial Business Highlights

  • Revenue of $970 million.
  • Total commercial customers of 430,000 compared to 441,000 during the
    first quarter of 2018.
  • Wholesale revenue was stable sequentially, and the trend in SME
    revenue improved sequentially.

______________________________

2 See Note 1, above. Adjusted EBITDA margin is a
non-GAAP measure of performance, calculated as adjusted EBITDA,
divided by total revenue. See "Non-GAAP Measures" for a
description of this measure and its calculation. See Schedule A
for a reconciliation to net loss.

3 Operating 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 Schedules A for a reconciliation to net cash
provided from operating activities.
 

Capital Structure and Capital Allocation

  • As of June 30, 2018, Frontier's leverage ratio was 4.70:1.
  • Frontier remains committed to reducing debt and improving its
    financial leverage profile.
    • Frontier purchased $48 million principal amount of its 2018 senior
      unsecured notes on the open market during the second quarter of
      2018.
    • On July 3, 2018 Frontier added $240 million to its existing Term
      Loan B facility maturing June 15, 2024. Proceeds were used to
      repay the entire $228 million of the CoBank senior term loan
      maturing October 24, 2019 and $6 million of the CoBank senior term
      loan maturing October 12, 2021.
  • Frontier's 11.125% Mandatory Convertible Preferred Stock converted
    into shares of Frontier common stock on June 29, 2018. The mandatory
    conversion increased common shares outstanding by 25.5 million,
    resulting in total common shares outstanding of 105.8 million as of
    June 30, 2018.

Guidance

Guidance for 2018 remains unchanged.

  • Adjusted EBITDA – Approximately $3.6 billion
  • Capital expenditures – $1.0 billion to $1.15 billion
  • Cash taxes – Less than $25 million
  • Cash pension/OPEB – Approximately $150 million
  • Cash interest expense – Approximately $1.5 billion for the full year;
    third quarter cash interest payments of approximately $600 million
  • Operating free cash flow – Approximately $800 million

Non-GAAP Financial Measures

Frontier uses certain non-GAAP financial measures in evaluating its
performance, including EBITDA, EBITDA margin, adjusted EBITDA, adjusted
EBITDA margin, operating free cash flow, and adjusted operating
expenses, 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. Management
believes that the presentation of these non-GAAP financial measures
provides useful information to investors regarding Frontier's 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 Frontier'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) 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), interest expense, investment and other income, pension
settlement costs, gains/losses on extinguishment of debt, and
depreciation and amortization. EBITDA margin is calculated by dividing
EBITDA by total revenue.

Adjusted EBITDA is defined as EBITDA, as described above, adjusted to
exclude acquisition and integration costs, certain pension/OPEB
expenses, restructuring costs and other charges, stock-based
compensation expense, goodwill impairment charges, and certain other
non-recurring items including work stoppage costs. Adjusted EBITDA
margin is calculated by dividing adjusted EBITDA by total revenue.

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. Management believes
that these non-GAAP measures provide useful information for investors in
evaluating Frontier's 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, among other factors, 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,
restructuring costs and other charges, pension settlement costs,
goodwill impairment charges, certain income tax items and the income tax
effect of these items, and certain other non-recurring items including
work stoppage costs. Adjusting for these items allows investors to
better understand and analyze Frontier's financial performance over the
periods presented.

Management defines operating free cash flow, a non-GAAP measure, as net
cash provided from operating activities less capital expenditures.
Management uses operating free cash flow to assist it in comparing
liquidity from period to period and to obtain a more comprehensive view
of Frontier's core operations and ability to generate cash flow.
Management believes that this non-GAAP measure is useful to investors in
evaluating cash available to service debt and pay dividends. This
non-GAAP financial measure has certain shortcomings; it does not
represent the residual cash flow available for discretionary
expenditures, as items such as debt repayments and preferred stock
dividends are not deducted in determining such measure. Management
compensates for these shortcomings by utilizing this non-GAAP financial
measure in conjunction with the comparable GAAP financial measure.

Adjusted operating expenses is defined as operating expenses adjusted to
exclude depreciation and amortization, acquisition and integration
costs, restructuring and other charges, goodwill impairment charges,
certain pension/OPEB expenses, stock-based compensation expense, and
certain other non-recurring items including work stoppage costs.
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 Frontier's documents
filed with the U.S. Securities and Exchange Commission.

Conference Call and Webcast

Frontier 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, under cover of a Current Report on Form 8-K,
additional materials regarding second quarter 2018 results. The
conference call will be webcast and may be accessed in the Webcasts
& Presentations
 section of Frontier's Investor Relations website
at www.frontier.com/ir.

A telephonic replay of the conference call will be available from 7:30
P.M. Eastern Time on Tuesday, July 31, 2018, through 7:30 P.M. Eastern
Time on Sunday, August 5, 2018 at 888-203-1112. Use the passcode 3090153
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 Business 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 events. Forward-looking statements address Frontier's expected
future business, financial performance, and financial condition, and
contain words such as "expect," "anticipate," "intend," "plan,"
"believe," "seek," "see," "may," "will," "would," or "target."
Forward-looking statements by their nature address matters that are, to
different degrees, uncertain. For Frontier, particular uncertainties
that could cause actual results to be materially different than those
expressed in such forward-looking statements include: competition from
cable, wireless and wireline carriers, satellite, and OTT companies, and
the risk that Frontier will not respond on a timely or profitable basis;
Frontier's ability to successfully adjust to changes in the
communications industry, including the effects of technological changes
and competition on its capital expenditures, products and service
offerings; declines in revenue from Frontier's voice services, switched
and non-switched access and video and data services that it cannot
stabilize or offset with increases in revenue from other products and
services; Frontier's ability to successfully implement strategic
initiatives, including opportunities to enhance revenue and realize
operational improvements; risks related to disruptions in Frontier's
networks, infrastructure and information technology that may result in
customer loss and/or incurrence of additional expenses; Frontier's
ability to retain or attract new customers and to maintain relationships
with customers, employees or suppliers; Frontier's ability to realize
anticipated benefits from recent acquisitions; Frontier's ability to
successfully introduce new product offerings; Frontier's ability to
dispose of certain assets or asset groups on terms that are attractive
to Frontier, or at all; the effects of governmental legislation and
regulation on Frontier's business; the impact of regulatory,
investigative and legal proceedings and legal compliance risks;
government infrastructure projects that impact capital expenditures;
continued reductions in switched access revenue 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 Frontier and its competitors; Frontier's
ability to meet its remaining CAF II funding obligations on a timely
basis and the risk of penalties or obligations to return certain CAF II
funds; Frontier's ability to effectively manage service quality and meet
mandated service quality metrics;; the effects of changes in accounting
policies or practices, including potential future impairment charges
with respect to intangible assets;; 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; Frontier's ability to successfully renegotiate
union contracts; changes in pension plan assumptions, interest rates,
discount rates, regulatory rules and/or the value of Frontier's pension
plan assets, which could require Frontier to make increased
contributions to its pension plans; Frontier's ability to effectively
manage its operations, operating expenses, capital expenditures, debt
service requirements and cash paid for income taxes and liquidity;
adverse changes in the credit markets, which could impact the
availability and cost of financing; adverse changes in the ratings given
to Frontier's debt securities by nationally accredited ratings
organizations;; covenants in Frontier's indentures and credit agreements
that may limit Frontier's operational and financial flexibility as well
as its ability to access the capital markets in the future; the effects
of state regulatory cash management practices that could limit
Frontier's ability to transfer cash among its subsidiaries or dividend
funds up to the parent company; the effects of changes in both general
and local economic conditions in the markets that Frontier serves;
Frontier's ability to hire or retain key personnel; the effects of
severe weather events or other natural or man-made disasters, which may
increase operating and capital 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 Frontier's filings with the U.S. Securities and Exchange Commission,
including its reports on Forms 10-K and 10-Q. These risks and
uncertainties may cause actual future results to be materially different
than those expressed in such forward-looking statements. Frontier has no
obligation to update or revise these forward-looking statements and does
not undertake to do so.

                 
Frontier Communications Corporation
Consolidated Financial Data
 
For the quarter ended For the six months ended
($ in millions and shares in thousands, except per share amounts) June 30, 2018 (1) March 31, 2018 (1) June 30, 2017 June 30, 2018 (1) June 30, 2017
 
Statement of Operations Data
Revenue $ 2,162 $ 2,199 $ 2,304 $ 4,361 $ 4,660
 
Operating expenses:
Network access expenses 369 372 408 741 819
Network related expenses 478 483 477 (2) 961 970 (2)
Selling, general and administrative expenses 460 469 531 (2) 929 1,073 (2)
Depreciation and amortization 486 505 552 991 1,131
Goodwill impairment - - 670 - 670
Acquisition and integration costs - - 12 - 14
Restructuring costs and other charges   2   4   29   6   41
Total operating expenses   1,795   1,833   2,679 (2)   3,628   4,718 (2)
(1) (1)
(1) (1)
Operating income (loss) 367 366 (375) (2) 733 (58) (2)
(1) (1)
Investment and other income (loss), net 5 8 - (2) 13 - (2)
Pension settlement costs 25 - 19 25 62
Gain (Loss) on extinguishment of debt - 33 (90) 33 (90)
Interest expense   385   374   388   759   776
 
Income (loss) before income taxes (38) 33 (872) (5) (986)
Income tax expense (benefit)   (20)   13   (210)   (7)   (249)
 
Net income (2)
Less: Income attributable to the noncontrolling
interest in a partnership
Net Income (loss) (18) 20 (662) 2 (737)
 
Less: Dividends on preferred stock   54   53   53   107   107
Net loss attributable to Frontier
common shareholders $ (72) $ (33) $ (715) $ (105) $ (844)
 
Weighted average shares outstanding - basic (3) 78,026 77,416 77,795 77,685 77,679
Weighted average shares outstanding - diluted (3) 78,026 77,416 77,951 77,685 77,835
 
Basic net loss per common share $ (0.92) $ (0.44) $ (9.20) $ (1.35) $ (10.88)
Diluted net loss per common share $ (0.92) $ (0.44) $ (9.21) $ (1.35) $ (10.89)
 
Other Financial Data:
Capital expenditures - Business operations $ 321 $ 297 $ 263 $ 618 $ 578
Capital expenditures - Integration activities $ - $ - $ 4 $ - $ 5
Dividends declared - Common stock $ - $ - $ 48 $ - $ 172
Dividends declared - Preferred stock $ 54 $ 53 $ 53 $ 107 $ 107
 
(1) We adopted Accounting Standard Update 2014-09,
"Revenue from Contracts with Customers (ASC 606)" on January 1,
2018, using the modified retrospective application. This method does
not impact the prior periods, which continue to reflect the
accounting treatment prior to the adoption of ASC 606. As a result,
for items that were affected by our adoption of ASC 606, financial
results of periods prior to January 1, 2018 are not comparable to
the current period financial results. To provide comparability to
our results, we provide a supplemental schedule (see Schedule D)
which contains certain financial information on a pre adoption of
ASC 606 basis.
 
(2) Effective January 1, 2018, Frontier adopted ASU
2017-07, "Improving the Presentation of Net Periodic Pension Cost
and Net Periodic Postretirement Benefit Cost." The standard requires
certain benefit costs to be reclassified from operating expenses to
non-operating expenses. This change in policy was applied using a
retrospective approach and accordingly we have reclassified $0 and
$3 million of net operating expenses as non-operating expense for
the three and six months ended June 30, 2017, respectively.
Additional pension settlement costs of $19 million and $62 million
for the three and six months ended June 30, 2017, respectively, were
reclassified from operating expense to non-operating expense.
 
(3) As of June 30, 2018, there were 106 million of common
shares outstanding and 0 shares of preferred stock.
 
                 
Frontier Communications Corporation
Consolidated Financial Data
 
For the quarter ended For the six months ended
June 30, 2018 (1) March 31, 2018 (1) June 30, 2017 June 30, 2018 (1) June 30, 2017

($ in millions)

 
Selected Statement of Operations Data
Revenue:
Data and internet services $ 973 $ 985 $ 974 ((2 )) $ 1,958 $ 1,967 ((2 ))
Voice services 682 702 724 1,384 1,475
Video services 270 280 329 550 676
Other   140   135   79   275   147
Customer revenue 2,065 2,102 2,106 ((2 )) 4,167 4,265 ((2 ))
Subsidy and other regulatory revenue   97   97   198   194   395
Total revenue $ 2,162 $ 2,199 $ 2,304 ((2 )) $ 4,361 $ 4,660 ((2 ))
 
Other Financial Data
Revenue:
Consumer $ 1,095 $ 1,128 $ 1,124 $ 2,223 $ 2,288
Commercial   970   974   982 ((2 ))   1,944   1,977 ((2 ))
Customer revenue 2,065 2,102 2,106 ((2 )) 4,167 4,265 ((2 ))
Subsidy and other regulatory revenue   97   97   198   194   395
Total revenue $ 2,162 $ 2,199 $ 2,304 ((2 )) $ 4,361 $ 4,660 ((2 ))
 
(1) We adopted Accounting Standard Update 2014-09,
"Revenue from Contracts with Customers (ASC 606)" on January 1,
2018, using the modified retrospective application. This method does
not impact the prior periods, which continue to reflect the
accounting treatment prior to the adoption of ASC 606. As a result,
for items that were affected by our adoption of ASC 606, financial
results of periods prior to January 1, 2018 are not comparable to
the current period financial results. To provide comparability to
our results, we provide a supplemental schedule (see Schedule D)
which contains certain financial information on a pre adoption of
ASC 606 basis.
 

(2) Includes revenue from Frontier Secure Strategic
Partnerships business, which was sold in May of 2017, of $15
million and $40 million for the three and six months ended June
30, 2017, respectively.

 
           
Frontier Communications Corporation
Consolidated Financial and Operating Data
 
 
For the quarter ended For the six months ended
June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018   June 30, 2017
 
Customers (in thousands) 4,667 4,765 5,058 4,667 5,058
 
Consumer customer metrics
Customers (in thousands) 4,237 4,324 4,585 4,237 4,585
Net customer additions/(losses) (86 ) (74 ) (151 ) (160 ) (306 )
Average monthly consumer
revenue per customer $ 85.28

(1

)

$ 86.21

(1

)

$ 80.38 $ 85.79

(1

)

$ 80.59
Customer monthly churn 1.95 % 1.94 % 2.24 % 1.94 % 2.31 %
 
Commercial customer metrics
Customers (in thousands) 430 441 473 430 473
Broadband subscriber metrics (in thousands)
Broadband subscribers 3,863 3,895 4,063 3,863 4,063
Net subscriber additions/(losses) (32 ) (43 ) (100 ) (75 ) (208 )
 
Video (excl. DISH) subscriber metrics (in thousands)
Video subscribers 902 934 1,007 902 1,007
Net subscriber additions/(losses) (32 ) (28 ) (58 ) (60 ) (138 )
 
Video - DISH subscriber metrics (in thousands)
DISH subscribers 219 227 254 219 254
Net subscriber additions/(losses) (8 ) (8 ) (12 ) (16 ) (20 )
 
Employees 21,718 22,081 23,924 21,718 23,924
 
(1) We adopted Accounting Standard Update 2014-09,
"Revenue from Contracts with Customers (ASC 606)" on January 1,
2018, using the modified retrospective application. This method does
not impact the prior periods, which continue to reflect the
accounting treatment prior to the adoption of ASC 606. As a result,
for items that were affected by our adoption of ASC 606, financial
results of periods prior to January 1, 2018 are not comparable to
the current period financial results. To provide comparability to
our results, we provide a supplemental schedule (see Schedule D)
which contains certain financial information on a pre adoption of
ASC 606 basis.
 
       
Frontier Communications Corporation
Condensed Consolidated Balance Sheet Data
 
 

($ in millions)

June 30, 2018 December 31, 2017
 

ASSETS

Current assets:
Cash and cash equivalents $ 384 $ 362
Accounts receivable, net 751 819
Other current assets   293   142
Total current assets 1,428 1,323
 
Property, plant and equipment, net 14,282 14,377
Other assets - principally goodwill   9,020   9,184
Total assets $ 24,730 $ 24,884
 

LIABILITIES AND EQUITY

Current liabilities:
Long-term debt due within one year $ 1,228 $ 656
Accounts payable and other current liabilities   1,828   1,852
Total current liabilities 3,056 2,508
 
Deferred income taxes and other liabilities 3,064 3,132
Long-term debt 16,209 16,970
Equity   2,401   2,274
Total liabilities and equity $ 24,730 $ 24,884
 
       
Frontier Communications Corporation
Consolidated Cash Flow Data
 
For the six months ended

($ in millions)

June 30, 2018 June 30, 2017
 
Cash flows provided from (used by) operating activities:
Net income (loss) $ 2 $ (737)
Adjustments to reconcile net loss to net cash provided from

(used by) operating activities:

Depreciation and amortization 991 1,131
(Gain) loss on extinguishment of debt (33) 90
Pension settlement costs 25 62
Stock-based compensation expense 9 6
Amortization of deferred financing costs 17 17
Other adjustments (20) (4)
Deferred income taxes (9) (254)
Goodwill impairment - 670
Change in accounts receivable 37 151
Change in accounts payable and other liabilities (72) (253)
Change in other current assets   (24)   (50)
Net cash provided from operating activities 923 829
 
Cash flows provided from (used by) investing activities:
Capital expenditures - Business operations (618) (578)
Capital expenditures - Integration activities - (5)
Proceeds on sale of assets 11 94
Other   (10)   5
Net cash used by investing activities (617) (484)
 
Cash flows provided from (used by) financing activities:
Proceeds from long-term debt borrowings 1,600 1,500
Long-term debt payments (1,714) (1,576)
Financing costs paid (39) (15)
Premium paid to retire debt (17) (80)
Dividends paid on common stock - (172)
Dividends paid on preferred stock (53) (107)
Capital lease obligation payments (17) (25)
Other   (8)   (5)
Net cash provided used by financing activities (248) (480)
 
Increase/(Decrease) in cash, cash equivalents, and restricted cash 58 (135)
Cash, cash equivalents, and restricted cash at January 1,   376   522
 
Cash, cash equivalents, and restricted cash at June 30, $ 434 $ 387
 
Supplemental cash flow information:
Cash paid (received) during the period for:
Interest $ 716 $ 797
Income tax payments (refunds), net $ 5 $ (3)
 
                    SCHEDULE A
Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures
 
For the quarter ended For the six months ended

($ in millions)

June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
 

EBITDA

Net income (loss) $ (18) $ 20 $ (662) $ 2 $ (737)
Add back (subtract):
Income tax expense (benefit) (20) 13 (210) (7) (249)
Interest expense 385 374 388 759 776
Investment and other (income) loss, net (5) (8) - (13) -
Pension settlement costs 25 - 19 25 62
(Gain) Loss on extinguishment of debt   -   (33)   90   (33)   90
Operating income (loss) 367 366 (375) 733 (58)
Depreciation and amortization   486   505   552   991   1,131
EBITDA 853 871 177 1,724 1,073
 
Add back:
Acquisition and integration costs - - 12 - 14
Pension/OPEB expense 23 22 25 45 47
Restructuring costs and other charges 2 4 29 6 41
Stock-based compensation expense 5 4 3 9 6
Work stoppage costs 1 7 - 8 -
Goodwill impairment   -   -   670   -   670
Adjusted EBITDA $ 884 $ 908 $ 916 $ 1,792 $ 1,851
 
EBITDA margin 39.5% 39.6% 7.7% 39.5% 23.0%
Adjusted EBITDA margin 40.9% 41.3% 39.8% 41.1% 39.7%
 

Free Cash Flow

 
Net cash provided from operating activities $ 672 $ 251 $ 529 $ 923 $ 829
Add back (subtract):
Capital expenditures - Business operations (321) (297) (263) (618) (578)
Capital expenditures - Integration   -   -   (4)   -   (5)
Operating free cash flow $ 351 $ (46) $ 262 $ 305 $ 246
 
            SCHEDULE B
Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures
 
For the quarter ended
June 30, 2018 March 31, 2018 June 30, 2017

($ 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 $ (72) $ (0.92) $ (33) $ (0.44) $ (715) $ (9.20)
 
Acquisition and integration costs - - 12
Restructuring costs and other charges 2 4 29
Pension settlement costs 25 - 19
(Gain) Loss on extinguishment of debt - (33) 90
Goodwill impairment - - 670
Work stoppage costs 1 7 -
Certain other tax items (1) (12) 4 4
Income tax effect on above items:
Acquisition and integration costs - - (4)
Restructuring costs and other charges - (1) (11)
Pension settlement costs (6) - (8)
(Gain) Loss on extinguishment of debt - 9 (33)
Goodwill impairment - - (138)
Work stoppage costs   -       (2)       -    
10 0.12 (12) (0.15) 630 8.10
Adjusted net loss attributable to
Frontier common shareholders(2) $ (62) $ (0.80) $ (45) $ (0.58) $ (85) $ (1.10)
 
For the six months ended
June 30, 2018 June 30, 2017

Net Income
(Loss)

Basic Earnings
(Loss) Per
Share

Net Income
(Loss)

Basic Earnings
(Loss) Per
Share

 
Net loss attributable to
Frontier common shareholders $ (105) $ (1.35) $ (844) $ (10.88)
 
Acquisition and integration costs - 14
Restructuring costs and other charges 6 41
Pension settlement costs 25 62
(Gain) Loss on extinguishment of debt (33) 90
Goodwill impairment - 670
Work stoppage costs 8 -
Certain other tax items (1) (8) 5
Income tax effect on above items:
Acquisition and integration costs - (5)
Restructuring costs and other charges (1) (15)
Pension settlement costs (6) (23)
(Gain) Loss on extinguishment of debt 9 (33)
Goodwill impairment - (138)
Work stoppage costs   (2)       -    
(2) (0.03) 668 8.60
Adjusted net loss attributable to
Frontier common shareholders(2) $ (107) $ (1.38) $ (176) $ (2.28)
 
(1) Includes impact arising from federal research and
development credits, changes in certain deferred tax balances, state
tax law changes, state filing method change, and the net impact of
uncertain tax positions.
 
(2) 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 For the six months ended

($ in millions)

June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
 

Adjusted Operating Expenses

 
Total operating expenses $ 1,795 $ 1,833 $ 2,679 (1) $ 3,628 $ 4,718 (1)
 
Subtract:
Depreciation and amortization 486 505 552 991 1,131
Goodwill impairment - - 670 - 670
Acquisition and integration
costs - - 12 - 14
Pension/OPEB expense 23 22 25 (1) 45 47 (1)
Restructuring costs and other charges 2 4 29 6 41
Stock-based compensation expense 5 4 3 9 6
Work stoppage costs   1   7   -   8   -
Adjusted operating expenses $ 1,278 $ 1,291 $ 1,388 $ 2,569 $ 2,809
 
(1) Effective January 1, 2018, Frontier adopted ASU
2017-07, "Improving the Presentation of Net Periodic Pension Cost
and Net Periodic Postretirement Benefit Cost." The standard requires
certain benefit costs to be reclassified from operating expenses to
non-operating expenses. This change in policy was applied using a
retrospective approach and accordingly we have reclassified $0 and
$3 million of net operating expenses as non-operating expense for
the three and six months ended June 30, 2017, respectively.
Additional pension settlement costs of $19 million and $62 million
for the three and six months ended June 30, 2017, respectively, were
reclassified from operating expense to non-operating expense.
 
SCHEDULE D
 
Comparability Disclaimer:
We adopted Accounting Standard Update 2014-09, "Revenue from
Contracts with Customers (ASC 606)" on January 1, 2018, using the
modified retrospective application. This method does not impact the
prior periods, which continue to reflect the accounting treatment
prior to the adoption of ASC 606. As a result, for items that were
affected by our adoption of ASC 606, financial results of periods
prior to January 1, 2018 are not comparable to the current period
financial results. To provide comparability to our results, we
provide the following supplemental schedule which contains certain
financial information on a pre-adoption of ASC 606 basis.
Frontier Communications Corporation
Consolidated Financial Data
               
As reported Amounts Excluding Adoption of ASC 606
For the three months ended For the three months ended
($ in millions) June 30, 2018 March 31, 2018 June 30, 2018 March 31, 2018
 
Selected Statement of Operations Data
Revenue:
Data and Internet services $ 973 $ 985 $ 948 $ 942
Voice services 682 702 648 670
Video services 270 280 297 309
Other   140   135   86   85
Revenue from contracts with customers 2,065 2,102 1,979 2,006
Subsidy and other regulatory revenue   97   97   181   187
Total revenue $ 2,162 $ 2,199 $ 2,160 $ 2,193
 
Other Revenue Data
Revenue:
Consumer $ 1,095 $ 1,128 $ 1,068 $ 1,089
Commercial   970   974   911   917
Revenue from contracts
Revenue from contracts with customers 2,065 2,102 1,979 2,006
Subsidy and other regulatory revenue   97   97   181   187
Total revenue $ 2,162 $ 2,199 $ 2,160 $ 2,193
 
 
As reported Amounts Excluding Adoption of ASC 606
For the three months ended For the three months ended

($ in millions)

June 30, 2018 March 31, 2018 June 30, 2018 March 31, 2018
 
Statement of Operations Data
Revenue $ 2,162 $ 2,199 $ 2,160 $ 2,193
Operating expenses:
Network access expenses 369 372 366 369
Network related expenses 478 483 478 483
Selling, general and administrative expenses 460 469 469 473
Depreciation and amortization 486 505 486 505
Restructuring costs and other charges   2   4   2   4
Total operating expenses   1,795   1,833   1,801   1,834
 
Operating income (loss) 367 366 359 359
 
Investment and other income (loss), net 5 8 5 8
Pension settlement costs 25 - 25 -
Gain on extinguishment of debt - 33 - 33
Interest expense   385   374   385   374
 
Income (loss) before income taxes (38) 33 (46) 26
Income tax expense (benefit)   (20)   13   (22)   12
 
Net Income (loss) (18) 20 (24) 14
 
Less: Dividends on preferred stock   54   53   54   53
Net loss attributable to Frontier
common shareholders $ (72) $ (33) $ (78) $ (39)
 
Other financial data:
Consumer ARPC $ 85.28 $ 86.21 $ 83.17 $ 83.26

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