[May 01, 2018] |
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Frontier Communications Reports 2018 First Quarter Results
Frontier Communications Corporation (NASDAQ:FTR) today reported
financial results for the first quarter ended March 31, 2018.
"In the first quarter we achieved growth in consumer revenue, reflecting
the early results of the substantial initiatives we have underway across
the company," said Dan McCarthy, President and CEO. "We are also
extremely pleased with the continued improvement in subscriber trends in
our California, Texas and Florida (CTF) markets, most notably that we
have achieved our first quarter of positive FiOS broadband net
additions. We also have begun to improve the trends in the Legacy
markets. The entire Frontier team remains focused on continuing to
enhance the customer experience, achieving further improvements in
churn, maintaining strong cash flow, and strengthening the balance
sheet. We are very confident that we have the opportunity for sustained
growth in consumer, and improvement in commercial."
Consolidated Results
The Company adopted the new revenue recognition standard ASC 606 using
the modified retrospective method effective January 1, 2018. The table
below reflects the results for the first quarter under ASC 606, as well
as what the first quarter results would have been under ASC 605, the
prior accounting standard. For comparison, we have also included our
fourth quarter results as reported under ASC 605.
______________________________ 1 See "Non-GAAP Measures"
for a description of this measure and its calculation. See Schedule A
for a reconciliation to net income/(loss).
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$ in millions (except ARPC)
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Q1 2018
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Q1 2018
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Q4 2017
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As Reported
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Excluding
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As Reported
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(Under ASC 606)
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Adoption
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(Under ASC 605)
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of ASC 606
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Revenue
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Consumer
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$
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1,128
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$
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1,089
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$
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1,086
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Commercial
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974
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917
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941
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Subsidy and Other Regulatory Revenue
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97
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187
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190
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Total Revenue
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$
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2,199
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$
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2,193
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$
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2,217
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Data & Internet Services
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985
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942
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939
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Voice Services
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702
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670
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687
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Video Services
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280
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309
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310
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Other
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135
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85
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91
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Total Customer Revenue
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2,102
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2,006
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2,027
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Subsidy and Other Regulatory Revenue
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97
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187
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190
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Total Revenue
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$
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2,199
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$
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2,193
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$
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2,217
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Net Income/(Loss)
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$
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20
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$
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14
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$
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(1,029
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Adjusted EBITDA
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$
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908
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$
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901
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$
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919
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Adjusted EBITDA Margin
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41.3
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%
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41.1
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%
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41.5
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%
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Consumer ARPC
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$
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86.21
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$
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83.26
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$
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81.61
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Consolidated revenue for the first quarter 2018 was $2.20 billion.
Within consolidated revenue, consumer revenue was $1.13 billion,
commercial revenue was $974 million and subsidy and other regulatory
revenue was $97 million. For the fourth quarter 2017, consolidated
revenue was $2.22 billion, consumer revenue was $1.09 billion,
commercial revenue was $941 million and subsidy and other regulatory
revenue was $190 million.
Net income for the first quarter of 2018 was $20 million. Net loss for
the first quarter attributable to common shares was $(33) million, for a
diluted net loss per common share of $(0.44). Adjusted EBITDA totaled
$908 million, for an adjusted EBITDA margin2 of 41.3%. For
the fourth quarter of 2017, net loss was $(1.03) billion. Net loss for
the fourth quarter attributable to common shares was $(1.08) billion,
for a diluted net loss per common share of $(13.91). Adjusted EBITDA
totaled $919 million for an adjusted EBITDA margin of 41.5%.
____________________________________ 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.
As of the end of the first quarter, the Company had attained
approximately $275 million in annualized cost synergies, and the Company
remains on track to achieve its target of $350 million in annualized
run-rate cost synergies by mid-2018.
For the first quarter of 2018, net cash provided from operating
activities was $251 million and operating free cash flow3 was
$(46) million, which reflects cash interest payments of $593 million, or
40% of the $1.5 billion expected annual cash interest expense. Over the
four-quarter period ending March 31, 2018, net cash provided from
operating activities was $1,801 million and operating free cash flow was
$632 million.
Consumer Business Highlights
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Revenue was $1.13 billion; the improved trend was driven by improved
product mix and better base management.
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Customer churn improved to 1.94% (1.71% for Legacy and 2.30% for CTF
operations).
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Average Revenue Per Customer (ARPC) of $86.21.
Commercial Business Highlights
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Revenue of $974 million. Excluding the impact of ASC 606, the
commercial revenue decline was caused by the Small, Medium, and
Enterprise (SME) portion of the business.
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Total commercial customers of 441,000 compared to 453,000 during the
fourth quarter of 2017.
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Carrier/wholesale revenue was roughly stable sequentially.
Capital Structure and Capital Allocation
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In January 2018, Frontier amended its credit facilities to provide
increased flexibility in managing its capital structure.
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In March 2018, Frontier issued $1.6 billion aggregate principal amount
of Second Lien Secured Notes due 2026. Frontier used the proceeds and
cash on hand to repurchase $1.65 billion aggregate principal amount of
notes due in 2020 and 2021.
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As of March 31, 2018, Frontier's leverage ratio (as calculated in
accordance with its credit agreements) was 4.77:1. The leverage ratio
was 4.59:1 as of December 31, 2017.
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The Board of Directors has declared a regular and final quarterly
dividend on the Convertible Preferred of $2.78125 per share, payable
in cash on June 29, 2018 to holders of record at the close of business
on June 15, 2018. The Convertible Preferred will convert to common
stock on June 29, 2018.
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Frontier remains committed to reducing debt and improving its
financial leverage profile.
_____________________________________ 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.
Guidance
Guidance for 2018 remains unchanged.
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Adjusted EBITDA - Approximately $3.6 billion
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Capital expenditures - $1.0 billion to $1.15 billion
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Cash taxes - Less than $25 million
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Cash pension/OPEB - Approximately $150 million
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Cash interest expense - Approximately $1.5 billion for the full year;
second quarter cash interest payments of approximately $150 million
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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 (e.g., storm-related costs and 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 non-recurring items (e.g.,
storm-related costs and 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, goodwill impairment charges, certain pension/OPEB expenses,
stock-based compensation expense, one-time storm-related and work
stoppage 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 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 first 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 8:00
P.M. Eastern Time on May 1, 2018, through 8:00 P.M. Eastern Time on May
6, 2018, at 888-203-1112 for callers dialing from the U.S. or Canada,
and at 719-457-0820 for those dialing from outside the U.S. or Canada.
Use the passcode 2051415 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, not past, events. Forward-looking statements express
management's expectations regarding Frontier's 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; Frontier's ability to
implement organizational structure changes; risks related to the
operation of Frontier's properties and ability to retain or attract new
customers; Frontier's ability to realize anticipated cost savings and
meet commitments made in connection with the Verizon acquisition;
reductions in revenue from voice customers that Frontier cannot offset
with increases in revenue from broadband and video subscribers and sales
of other products and services; Frontier's ability to maintain
relationships with customers, employees or suppliers; Frontier's ability
to attract/retain key talent; 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 broadband buildout obligations on a
timely basis; Frontier's ability to effectively manage service quality
and meet mandated service quality metrics; Frontier's ability to
successfully introduce new product offerings; the effects of changes in
accounting policies or practices, including potential future impairment
charges with respect to intangible assets; Frontier's ability to
effectively manage its operations, operating expenses, capital
expenditures, debt service requirements and cash paid for income taxes
and liquidity; the effects of changes in both general and local economic
conditions in the markets that Frontier serves; 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; adverse changes in the
credit markets; adverse changes in the ratings given to Frontier's debt
securities by nationally accredited ratings organizations; the
availability and cost of financing in the credit markets; 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 severe weather events or other natural or man-made
disasters, which may increase 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 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.
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Frontier Communications Corporation
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Consolidated Financial Data
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For the quarter ended
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($ in millions and shares in thousands, except per share amounts)
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March 31, 2018 (1)
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December 31, 2017
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March 31, 2017
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Statement of Operations Data
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Revenue
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$
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2,199
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$
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2,217
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$
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2,356
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Operating expenses:
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Network access expenses
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372
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388
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411
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Network related expenses
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483
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491
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(2)
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493
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(2)
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Selling, general and administrative expenses
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469
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456
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(2)
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542
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(2)
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Depreciation and amortization
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505
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514
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579
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Goodwill impairment
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-
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2,078
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-
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Acquisition and integration costs
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-
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10
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2
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Restructuring costs and other charges
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4
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27
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12
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Total operating expenses
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1,833
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3,964
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(2)
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2,039
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(2)
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Operating income (loss)
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366
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(1,747
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)
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(2)
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317
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(2)
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Investment and other income (loss), net
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8
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(3
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)
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(2)
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-
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(2)
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Pension settlement costs
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-
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6
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43
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Gain on extinguishment of debt
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33
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1
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-
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Interest expense
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374
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377
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388
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Income (loss) before income taxes
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33
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(2,132
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)
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(114
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)
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Income tax expense (benefit)
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13
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(1,103
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)
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(39
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)
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Net income (2)
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Less: Income attributable to the noncontrolling interest in a
partnership
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Net Income (loss)
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20
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|
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(1,029
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)
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(75
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)
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Less: Dividends on preferred stock
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53
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53
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|
|
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54
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Net loss attributable to Frontier common shareholders
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$
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(33
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)
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$
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(1,082
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)
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$
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(129
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)
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Weighted average shares outstanding - basic
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77,416
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77,805
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|
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77,591
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Weighted average shares outstanding - diluted
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77,416
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77,805
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|
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77,591
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Basic net loss per common share
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$
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(0.44
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)
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$
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(13.91
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)
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$
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(1.67
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)
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Diluted net loss per common share
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$
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(0.44
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)
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$
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(13.91
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)
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$
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(1.67
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)
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Other Financial Data:
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Capital expenditures - Business operations
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$
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297
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$
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308
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$
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315
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Capital expenditures - Integration activities
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$
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-
|
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|
$
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15
|
|
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$
|
1
|
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|
Dividends paid - Common stock
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|
$
|
-
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|
$
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47
|
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$
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124
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Dividends paid - Preferred stock
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|
$
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53
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$
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53
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$
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54
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(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.
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(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 $1
million and $3 million of net operating expenses as non-operating
expense for the three months ended December 31, 2017 and March 31,
2017, respectively. Additional pension settlement costs of $6
million and $43 million for the three months ended December 31, 2017
and March 31, 2017, respectively, were reclassified from operating
expense to non-operating expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frontier Communications Corporation
|
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended
|
|
|
|
|
March 31, 2018 (1)
|
|
December 31, 2017
|
|
March 31, 2017
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Data and internet services
|
|
$
|
985
|
|
$
|
939
|
|
$
|
993
|
|
(2)
|
Voice services
|
|
|
702
|
|
|
687
|
|
|
751
|
|
|
Video services
|
|
|
280
|
|
|
310
|
|
|
347
|
|
|
Other
|
|
|
135
|
|
|
91
|
|
|
68
|
|
|
Customer revenue
|
|
|
2,102
|
|
|
2,027
|
|
|
2,159
|
|
(2)
|
Subsidy and other regulatory revenue
|
|
|
97
|
|
|
190
|
|
|
197
|
|
|
Total revenue
|
|
$
|
2,199
|
|
$
|
2,217
|
|
$
|
2,356
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
1,128
|
|
$
|
1,086
|
|
$
|
1,164
|
|
|
Commercial
|
|
|
974
|
|
|
941
|
|
|
995
|
|
(2)
|
Customer revenue
|
|
|
2,102
|
|
|
2,027
|
|
|
2,159
|
|
(2)
|
Subsidy and other regulatory revenue
|
|
|
97
|
|
|
190
|
|
|
197
|
|
|
Total revenue
|
|
$
|
2,199
|
|
$
|
2,217
|
|
$
|
2,356
|
|
(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 $25
million for the three months ended March 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frontier Communications Corporation
|
Consolidated Financial and Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers (in thousands)
|
|
|
4,765
|
|
|
|
|
4,850
|
|
|
|
5,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer customer metrics
|
|
|
|
|
|
|
|
|
|
|
|
Customers (in thousands)
|
|
|
4,324
|
|
|
|
|
4,397
|
|
|
|
4,736
|
|
|
Net customer additions/(losses)
|
|
|
(74
|
)
|
|
|
|
(89
|
)
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average monthly consumer revenue per customer
|
|
$
|
86.21
|
|
(1)
|
|
$
|
81.61
|
|
|
$
|
80.62
|
|
|
Customer monthly churn
|
|
|
1.94
|
%
|
|
|
|
1.98
|
%
|
|
|
2.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial customer metrics
|
|
|
|
|
|
|
|
|
|
|
|
Customers (in thousands)
|
|
|
441
|
|
|
|
|
453
|
|
|
|
484
|
|
|
Broadband subscriber metrics (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Broadband subscribers
|
|
|
3,895
|
|
|
|
|
3,938
|
|
|
|
4,164
|
|
|
Net subscriber additions/(losses)
|
|
|
(43
|
)
|
|
|
|
(63
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video (excl. DISH) subscriber metrics (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Video subscribers
|
|
|
934
|
|
|
|
|
961
|
|
|
|
1,065
|
|
|
Net subscriber additions/(losses)
|
|
|
(28
|
)
|
|
|
|
(20
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video - DISH subscriber metrics (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
DISH subscribers
|
|
|
227
|
|
|
|
|
235
|
|
|
|
266
|
|
|
Net subscriber additions/(losses)
|
|
|
(8
|
)
|
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
22,081
|
|
|
|
|
22,736
|
|
|
|
26,878
|
|
(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) At March 31, 2017, we had approximately 1,900
employees from our Frontier Secure Partnerships business, which was
sold in May 2017.
|
|
|
|
|
|
|
|
Frontier Communications Corporation
|
Condensed Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
March 31. 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
201
|
|
$
|
362
|
Accounts receivable, net
|
|
|
778
|
|
|
819
|
Other current assets
|
|
|
223
|
|
|
142
|
Total current assets
|
|
|
1,202
|
|
|
1,323
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
14,321
|
|
|
14,377
|
Other assets - principally goodwill
|
|
|
9,155
|
|
|
9,184
|
Total assets
|
|
$
|
24,678
|
|
$
|
24,884
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Long-term debt due within one year
|
|
$
|
1,060
|
|
$
|
656
|
Accounts payable and other current liabilities
|
|
|
1,606
|
|
|
1,852
|
Total current liabilities
|
|
|
2,666
|
|
|
2,508
|
|
|
|
|
|
|
|
Deferred income taxes and other liabilities
|
|
|
3,157
|
|
|
3,132
|
Long-term debt
|
|
|
16,470
|
|
|
16,970
|
Equity
|
|
|
2,385
|
|
|
2,274
|
Total liabilities and equity
|
|
$
|
24,678
|
|
$
|
24,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frontier Communications Corporation
|
Consolidated Cash Flow Data
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31,
|
($ in millions)
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Cash flows provided from (used by) operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
20
|
|
|
$
|
(75
|
)
|
Adjustments to reconcile net loss to net cash provided from (used
by) operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
505
|
|
|
|
579
|
|
Gain on extinguishment of debt
|
|
|
(33
|
)
|
|
|
-
|
|
Pension settlement costs
|
|
|
-
|
|
|
|
43
|
|
Stock-based compensation expense
|
|
|
4
|
|
|
|
3
|
|
Amortization of deferred financing costs
|
|
|
9
|
|
|
|
9
|
|
Other adjustments
|
|
|
(9
|
)
|
|
|
-
|
|
Deferred income taxes
|
|
|
12
|
|
|
|
(41
|
)
|
Change in accounts receivable
|
|
|
9
|
|
|
|
105
|
|
Change in accounts payable and other liabilities
|
|
|
(261
|
)
|
|
|
(312
|
)
|
Change in other current assets
|
|
|
(5
|
)
|
|
|
(11
|
)
|
Net cash provided from operating activities
|
|
|
251
|
|
|
|
300
|
|
|
|
|
|
|
|
|
Cash flows provided from (used by) investing activities:
|
|
|
|
|
|
|
Capital expenditures - Business operations
|
|
|
(297
|
)
|
|
|
(315
|
)
|
Capital expenditures - Integration activities
|
|
|
-
|
|
|
|
(1
|
)
|
Proceeds on sale of assets
|
|
|
10
|
|
|
|
70
|
|
Other
|
|
|
(2
|
)
|
|
|
3
|
|
Net cash used by investing activities
|
|
|
(289
|
)
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
Cash flows provided from (used by) financing activities:
|
|
|
|
|
|
|
Proceeds from long-term debt borrowings
|
|
|
1,600
|
|
|
|
-
|
|
Long-term debt payments
|
|
|
(1,627
|
)
|
|
|
(38
|
)
|
Financing costs paid
|
|
|
(26
|
)
|
|
|
(6
|
)
|
Premium paid to retire debt
|
|
|
(16
|
)
|
|
|
-
|
|
Dividends paid on common stock
|
|
|
-
|
|
|
|
(124
|
)
|
Dividends paid on preferred stock
|
|
|
(53
|
)
|
|
|
(54
|
)
|
Capital lease obligation payments
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Other
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Net cash provided used by financing activities
|
|
|
(137
|
)
|
|
|
(238
|
)
|
|
|
|
|
|
|
|
Decrease in cash, cash equivalents, and restricted cash
|
|
|
(175
|
)
|
|
|
(181
|
)
|
Cash, cash equivalents, and restricted cash at January 1,
|
|
|
376
|
|
|
|
522
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at March 31,
|
|
$
|
201
|
|
|
$
|
341
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
Cash paid (received) during the period for:
|
|
|
|
|
|
|
Interest
|
|
$
|
593
|
|
|
$
|
577
|
|
Income tax refunds, net
|
|
$
|
-
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE A
|
Frontier Communications Corporation
|
Reconciliation of Non-GAAP Financial Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended
|
($ in millions)
|
|
March 31. 2018
|
|
December 31, 2017
|
|
March 31, 2017
|
EBITDA
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
20
|
|
|
$
|
(1,029
|
)
|
|
$
|
(75
|
)
|
Add back (subtract):
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
13
|
|
|
|
(1,103
|
)
|
|
|
(39
|
)
|
Interest expense
|
|
|
374
|
|
|
|
377
|
|
|
|
388
|
|
Investment and other (income) loss, net
|
|
|
(8
|
)
|
|
|
3
|
|
|
|
-
|
|
Pension settlement costs
|
|
|
-
|
|
|
|
6
|
|
|
|
43
|
|
Gain on extinguishment of debt
|
|
|
(33
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
Operating income (loss)
|
|
|
366
|
|
|
|
(1,747
|
)
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
505
|
|
|
|
514
|
|
|
|
579
|
|
EBITDA
|
|
|
871
|
|
|
|
(1,233
|
)
|
|
|
896
|
|
|
|
|
|
|
|
|
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
Acquisition and integration costs
|
|
|
-
|
|
|
|
10
|
|
|
|
2
|
|
Pension/OPEB expense
|
|
|
22
|
|
|
|
20
|
|
|
|
22
|
|
Restructuring costs and other charges
|
|
|
4
|
|
|
|
27
|
|
|
|
12
|
|
Stock-based compensation expense
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
Storm-related costs
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
Work stoppage costs
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
2,078
|
|
|
|
-
|
|
Adjusted EBITDA
|
|
$
|
908
|
|
|
$
|
919
|
|
|
$
|
935
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA margin
|
|
|
39.6
|
%
|
|
|
-55.6
|
%
|
|
|
38.0
|
%
|
Adjusted EBITDA margin
|
|
|
41.3
|
%
|
|
|
41.5
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities
|
|
$
|
251
|
|
|
$
|
665
|
|
|
$
|
300
|
|
Add back (subtract):
|
|
|
|
|
|
|
|
|
|
Capital expenditures - Business operations
|
|
|
(297
|
)
|
|
|
(308
|
)
|
|
|
(315
|
)
|
Capital expenditures - Integration
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
(1
|
)
|
Operating free cash flow
|
|
$
|
(46
|
)
|
|
$
|
342
|
|
|
$
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE B
|
Frontier Communications Corporation
|
Reconciliation of Non-GAAP Financial Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 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
|
|
$
|
(33
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(1,082
|
)
|
|
$
|
(13.91
|
)
|
|
$
|
(129
|
)
|
|
$
|
(1.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and integration costs
|
|
|
-
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
2
|
|
|
|
|
Restructuring costs and other charges
|
|
|
4
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
12
|
|
|
|
|
Pension settlement costs
|
|
|
-
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
43
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
(33
|
)
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
-
|
|
|
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
|
|
|
2,078
|
|
|
|
|
|
|
-
|
|
|
|
|
Storm-related costs
|
|
|
-
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
-
|
|
|
|
|
Work stoppage costs
|
|
|
7
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
|
Effect of tax reform
|
|
|
-
|
|
|
|
|
|
|
(830
|
)
|
|
|
|
|
|
|
|
|
|
Certain other tax items (1)
|
|
|
4
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
1
|
|
|
|
|
Income tax effect on above items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and integration costs
|
|
|
-
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
(1
|
)
|
|
|
|
Restructuring costs and other charges
|
|
|
(1
|
)
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
(4
|
)
|
|
|
|
Pension settlement costs
|
|
|
-
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
(15
|
)
|
|
|
|
Gain on extinguishment of debt
|
|
|
9
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
-
|
|
|
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
|
|
|
(256
|
)
|
|
|
|
|
|
-
|
|
|
|
|
Storm-related costs
|
|
|
-
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
-
|
|
|
|
|
Work stoppage costs
|
|
|
(2
|
)
|
|
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(0.15
|
)
|
|
|
1,036
|
|
|
|
13.32
|
|
|
|
38
|
|
|
|
0.49
|
|
Adjusted net loss attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frontier common shareholders(2)
|
|
$
|
(45
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(46
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(91
|
)
|
|
$
|
(1.18
|
)
|
(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
|
|
|
|
($ in millions)
|
|
March 31. 2018
|
|
December 31, 2017
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
1,833
|
|
$
|
3,964
|
|
(1)
|
|
$
|
2,039
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
505
|
|
|
514
|
|
|
|
|
579
|
|
|
|
Goodwill impairment
|
|
|
-
|
|
|
2,078
|
|
|
|
|
-
|
|
|
|
Acquisition and integration costs
|
|
|
-
|
|
|
10
|
|
|
|
|
2
|
|
|
|
Pension/OPEB expense
|
|
|
22
|
|
|
20
|
|
(1)
|
|
|
22
|
|
(1)
|
|
Restructuring costs and other charges
|
|
|
4
|
|
|
27
|
|
|
|
|
12
|
|
|
|
Stock-based compensation expense
|
|
|
4
|
|
|
4
|
|
|
|
|
3
|
|
|
|
Storm-related costs
|
|
|
-
|
|
|
13
|
|
|
|
|
-
|
|
|
|
Work stoppage costs
|
|
|
7
|
|
|
-
|
|
|
|
|
-
|
|
|
|
Adjusted operating expenses
|
|
$
|
1,291
|
|
$
|
1,298
|
|
|
|
$
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $1
million and $3 million of net operating expenses as non-operating
expense for the three months ended December 31, 2017 and March 31,
2017, respectively. Additional pension settlement costs of $6
million and $43 million for the three months ended December 31, 2017
and March 31, 2017 , respectively, were reclassified from operating
expense to non-operating expense.
|
|
SCHEDULE D
|
|
Comparability Disclaimer:
|
We adopted Accounting Standard Update 2014-09, "Revenue from
Contracts with Customers (ASC 606)" on January 1, 2018, using the
modified retrospective application. This method does not impact
the prior periods, which continue to reflect the accounting
treatment prior to the adoption of ASC 606. As a result, for items
that were affected by our adoption of ASC 606, financial results
of periods prior to January 1, 2018 are not comparable to the
current period financial results. To provide comparability to our
results, we provide the following supplemental schedule which
contains certain financial information on a pre adoption of ASC
606 basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frontier Communications Corporation
|
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
|
|
Amounts Excluding
|
|
|
|
|
|
|
|
|
Adoption of
|
|
Adoption of
|
|
As reported
|
($ in millions)
|
|
As reported
|
|
ASC 606
|
|
ASC 606
|
|
December 31, 2017
|
Selected Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and Internet services
|
|
$
|
985
|
|
|
$
|
(43
|
)
|
|
$
|
942
|
|
|
$
|
939
|
|
Voice services
|
|
|
702
|
|
|
|
(32
|
)
|
|
|
670
|
|
|
|
687
|
|
Video services
|
|
|
280
|
|
|
|
29
|
|
|
|
309
|
|
|
|
310
|
|
Other
|
|
|
135
|
|
|
|
(50
|
)
|
|
|
85
|
|
|
|
91
|
|
Revenue from contracts with customers
|
|
|
2,102
|
|
|
|
(96
|
)
|
|
|
2,006
|
|
|
|
2,027
|
|
Subsidy and other regulatory revenue
|
|
|
97
|
|
|
|
90
|
|
|
|
187
|
|
|
|
190
|
|
Total revenue
|
|
$
|
2,199
|
|
|
$
|
(6
|
)
|
|
$
|
2,193
|
|
|
$
|
2,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Revenue Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
1,128
|
|
|
$
|
(39
|
)
|
|
$
|
1,089
|
|
|
$
|
1,086
|
|
Commercial
|
|
|
974
|
|
|
|
(57
|
)
|
|
|
917
|
|
|
|
941
|
|
Revenue from contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers
|
|
|
2,102
|
|
|
|
(96
|
)
|
|
|
2,006
|
|
|
|
2,027
|
|
Subsidy and other regulatory revenue
|
|
|
97
|
|
|
|
90
|
|
|
|
187
|
|
|
|
190
|
|
Total revenue
|
|
$
|
2,199
|
|
|
$
|
(6
|
)
|
|
$
|
2,193
|
|
|
$
|
2,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of
|
|
Amounts Excluding
|
|
|
|
|
|
|
|
|
Adoption of
|
|
Adoption of
|
|
As reported
|
($ in millions)
|
|
As reported
|
|
ASC 606
|
|
ASC 606
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,199
|
|
|
$
|
(6
|
)
|
|
$
|
2,193
|
|
|
$
|
2,217
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network access expenses
|
|
|
372
|
|
|
|
(3
|
)
|
|
|
369
|
|
|
|
388
|
|
Network related expenses
|
|
|
483
|
|
|
|
-
|
|
|
|
483
|
|
|
|
491
|
|
Selling, general and administrative expenses
|
|
|
469
|
|
|
|
4
|
|
|
|
473
|
|
|
|
456
|
|
Depreciation and amortization
|
|
|
505
|
|
|
|
-
|
|
|
|
505
|
|
|
|
514
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,078
|
|
Acquisition and integration costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
Restructuring costs and other charges
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
|
|
27
|
|
Total operating expenses
|
|
|
1,833
|
|
|
|
1
|
|
|
|
1,834
|
|
|
|
3,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
366
|
|
|
|
(7
|
)
|
|
|
359
|
|
|
|
(1,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income (loss), net
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
|
|
(3
|
)
|
Pension settlement costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
Gain on extinguishment of debt
|
|
|
33
|
|
|
|
-
|
|
|
|
33
|
|
|
|
1
|
|
Interest expense
|
|
|
374
|
|
|
|
-
|
|
|
|
374
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
33
|
|
|
|
(7
|
)
|
|
|
26
|
|
|
|
(2,132
|
)
|
Income tax expense (benefit)
|
|
|
13
|
|
|
|
(1
|
)
|
|
|
12
|
|
|
|
(1,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
|
20
|
|
|
|
(6
|
)
|
|
|
14
|
|
|
|
(1,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Dividends on preferred stock
|
|
|
53
|
|
|
|
-
|
|
|
|
53
|
|
|
|
53
|
|
Net loss attributable to Frontier common shareholders
|
|
$
|
(33
|
)
|
|
$
|
(6
|
)
|
|
$
|
(39
|
)
|
|
$
|
(1,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer ARPC
|
|
$
|
86.21
|
|
|
$
|
2.95
|
|
|
$
|
83.26
|
|
|
$
|
81.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20180501006707/en/
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