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Frontier Communications Corporation$2.71($.10)(3.56%)

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 Frontier Communications Reports 2018 Second Quarter Results
   Tuesday, July 31, 2018 4:01:00 PM ET

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

NORWALK, Conn.--(BUSINESS WIRE)-- 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

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.

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 .

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

 
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
 
 

June 30, 2018 December 31, 2017
 

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
 

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

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

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

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%
 

 
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

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

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

 
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
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

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

Frontier Communications Corporation
INVESTORS:
Luke Szymczak, 203-614-5044
VP, Investor Relations
luke.szymczak@ftr.com
or
MEDIA:
Brigid Smith, 203-614-5042
AVP, Corporate Communications
brigid.smith@ftr.com

Source: Frontier Communications Corporation



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