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Press release from Business Wire

Frontier Communications Reports 2012 Third Quarter Results

<p> <b>•</b> <b>Continued improvements in revenue and customer metrics</b> </p> <p> <b>•</b> <b>Improved liquidity through successful debt offerings</b> </p> <p> <b>•</b> <b>Third quarter free cash flow of $215.3 million</b> </p> <p class='bwalignl'> <b>•</b> <b>Dividend payout ratio of 40% for the first 9 months of 2012</b> </p> <p class='bwalignl'> <b>•</b> <b>Third quarter operating cash flow margin of 46%, as adjusted</b> </p>

Tuesday, November 06, 2012

Frontier Communications Reports 2012 Third Quarter Results07:00 EST Tuesday, November 06, 2012 STAMFORD, Conn. (Business Wire) -- Frontier Communications Corporation (NASDAQ: FTR) today reported third quarter 2012 revenue of $1,252.5 million, operating income of $275.2 million and net income attributable to common shareholders of Frontier of $67.0 million, or $0.07 per share. “Frontier had a milestone third quarter, with the best revenue and customer metrics since the closing of our July 2010 acquisition. Our improved broadband speeds, new simple and flexible pricing, and great customer service are positively impacting the customer experience,” said Maggie Wilderotter, Chairman & CEO of Frontier Communications. “Our strong results enabled us to raise $850 million in the bond market during August and October, bringing our 2012 total to $1.35 billion. We are well on track to meet our federal and state broadband expansion commitments, and we are excited about our new fourth quarter promotions and offers, including bundled satellite broadband service with Hughes, bundled mobile service with AT&T, and an Apple gift card promotion.” Revenue for the third quarter of 2012 was $1,252.5 million as compared to $1,258.8 million in the second quarter of 2012 and $1,290.9 million in the third quarter of 2011. The decrease in revenue for the third quarter of 2012 as compared to the third quarter of 2011 is attributable to decreases in the number of residential and business customers and switched access revenue. The Company's results reflect improvements in a number of critical customer metrics. At September 30, 2012, the Company had 2,932,200 residential customers and 291,400 business customers. During the three months ended September 30, 2012 we lost approximately 51,800 customers as compared to 65,700 customers in the three months ended June 30, 2012 and 72,600 customers in the three months ended March 31, 2012. Also, during the most recent quarter, the average monthly customer revenue per customer increased $2.09, or 1.9%, over the second quarter of 2012 and $3.61, or 3.3%, over the first quarter of 2012. The Company's broadband customer net additions were approximately 1,000 during the third quarter of 2012, reflecting the impact of lower customer activations as a result of fewer marketing promotions and final conversion clean-up. The Company had 1,782,300 broadband customers at September 30, 2012. The Company added 27,300 satellite TV customers and lost 4,100 FiOS video customers during the third quarter of 2012. The Company had 388,300 video customers at September 30, 2012, which reflects the curtailment of DirecTV billing as part of its bundled packages. Network access expenses and other operating expenses for the third quarter of 2012 were $674.4 million as compared to $655.3 million in the second quarter of 2012 and $691.3 million in the third quarter of 2011. Other operating expenses included severance costs of $6.8 million in the third quarter of 2012, $1.5 million in the second quarter of 2012 and $3.6 million in the third quarter of 2011. The Company incurred non-recurring storm cost expenses in the third quarter of 2012 of approximately $15 million as compared to the second quarter of 2012. Depreciation and amortization for the third quarter of 2012 was $298.4 million as compared to $307.0 million in the second quarter of 2012 and $351.9 million in the third quarter of 2011. Amortization expense decreased by $36.7 million in the third quarter of 2012 as compared to the third quarter of 2011, primarily due to the write-off of certain software licenses no longer required for operations and the amortization associated with certain Frontier legacy properties that were fully amortized in March 2012. Integration costs of approximately $4.5 million were incurred during the third quarter of 2012, as compared to approximately $28.6 million ($0.02 per share after tax) in the second quarter of 2012 and $67.4 million ($0.04 per share after tax) in the third quarter of 2011, in connection with our integration of the acquired properties. These nonrecurring costs in 2012 were incurred in connection with our successful conversion of the final nine states onto our platform of system applications in March 2012, and other ongoing network and operations integration work. Our integration costs and related capital expenditures will be completed by the end of 2012. Operating income for the third quarter of 2012 was $275.2 million (reflecting lower depreciation and amortization, integration costs and network access expenses as compared to the third quarter of 2011) and operating income margin was 22.0 percent as compared to operating income of $267.8 million and operating income margin of 21.3 percent in the second quarter of 2012 and operating income of $180.3 million and operating income margin of 14.0 percent in the third quarter of 2011. Excluding integration costs and severance costs, operating income and operating income margin for the three months ended September 30, 2012 would have been $286.5 million and 22.9 percent, respectively. Excluding the comparable adjustments in each period, operating income and operating income margin for the three months ended June 30, 2012 would have been $297.9 million and 23.7 percent, respectively, and for the three months ended September 30, 2011 would have been $251.3 million and 19.5 percent, respectively. Operating income, excluding integration costs and severance costs, decreased $11.4 million in the third quarter of 2012 as compared to the second quarter of 2012, primarily due to the non-recurring storm cost expenses. Interest expense for the third quarter of 2012 was $172.2 million as compared to $165.8 million in the third quarter of 2011, a $6.4 million increase, primarily due to higher average debt levels and lower capitalized interest in 2012. In August 2012, the Company completed a registered offering of $600.0 million aggregate principal amount of 7.125% senior unsecured notes due 2023. We received net proceeds of approximately $588.1 million from the offering which we will use to repurchase or retire existing indebtedness or for general corporate purposes. Income tax expense for the third quarter of 2012 was $35.7 million as compared to a $6.9 million tax benefit in the third quarter of 2011, a $42.6 million increase, principally due to higher pretax income and the reduced impact for the reversal of uncertain tax positions of $6.2 million. Net income attributable to common shareholders of Frontier was $67.0 million, or $0.07 per share, in the third quarter of 2012, as compared to $20.4 million, or $0.02 per share, in the third quarter of 2011. The third quarter of 2012 includes severance costs of $6.8 million, integration costs of $4.5 million and losses on the early extinguishment of debt of $0.2 million, offset by the reversal of uncertain tax positions of $7.8 million (combined net impact of $0.2 million after tax). Excluding the impact of the aforementioned items, non-GAAP adjusted net income attributable to common shareholders of Frontier for the third quarter of 2012 would be $66.8 million, or $0.07 per share. Capital expenditures for Frontier business operations were $195.0 million for the third quarter of 2012 and $571.1 million for the first nine months of 2012. Capital expenditures related to integration activities were $10.8 million for the third quarter of 2012 and $38.8 million for the first nine months of 2012. Operating cash flow, as adjusted and defined by the Company in the attached Schedule B, was $581.3 million for the third quarter of 2012 resulting in an operating cash flow margin of 46.4 percent. Operating cash flow, as reported, of $573.6 million for the third quarter of 2012 has been adjusted to exclude $6.8 million of severance costs and $4.5 million of integration costs, partially offset by $3.6 million of non-cash pension and other postretirement benefit costs. Free cash flow, as defined by the Company in the attached Schedule A,was $215.3 million for the third quarter of 2012 and $753.3 million for the first nine months of 2012. The Company's dividend represents a payout of 40 percent of free cash flow for the first nine months of 2012. Working Capital At September 30, 2012, we had a working capital surplus of $608.2 million, which includes the classification of certain debt maturing in the first quarter of 2013 of $502.7 million as a current liability. We believe our operating cash flows, existing cash balances and existing revolving credit facility will be adequate to meet our working capital and other cash requirements. Fourth Quarter Debt Offering and Repurchases On October 1, 2012, the Company completed a registered debt offering of $250 million aggregate principal amount of 7.125% senior unsecured notes due 2023, issued at a price of 104.250% of their principal amount, equating to an effective yield of 6.551%. The notes are an additional issuance to the $600 million aggregate principal amount of 7.125% senior notes due 2023 issued by the Company on August 15, 2012. The Company will use the net proceeds from the sale of the notes to repurchase or retire its existing indebtedness or for general corporate purposes. On October 1, 2012, the Company accepted for purchase $75.7 million and $59.3 million aggregate principal amount of its 7.875% Senior Notes due 2015 (the April 2015 Notes) and its 8.250% Senior Notes due 2017 (the 2017 Notes), respectively, in open market repurchases for total consideration of $154.7 million. The repurchases resulted in a loss on the early extinguishment of debt of approximately $19.3 million ($0.01 per share after tax) to be recognized in the fourth quarter of 2012. As of October 31, 2012, approximately $374.8 million aggregate principal amount of the April 2015 Notes and $1,040.7 million aggregate principal amount of the 2017 Notes remained outstanding. Guidance For the full year of 2012, the Company's expectations for capital expenditures and free cash flow, excluding integration costs and integration capital expenditures, are within a range of $750 million to $775 million and $900 million to $1 billion, respectively. We expect that in 2012 our cash taxes will be approximately $15 million. We expect to incur operating expenses and capital expenditures for integration activities of approximately $80 million and $50 million, respectively, in 2012. We made total net contributions to our pension plan for 2012 of $28.5 million, including $18.2 million in the third quarter of 2012 and $10.3 million in October 2012. These contributions reflect the positive impact of funding rate changes contained in the Highway Investment Act of 2012. There are no further contributions to be made in 2012. For the full year of 2013, the Company's expectations for capital expenditures are within a range of $625 million to $675 million. We expect that in 2013, absent any legislative changes in 2012 or 2013, our cash taxes will be in the range of $125 million to $150 million. Non-GAAP Measures The Company uses certain non-GAAP financial measures in evaluating its performance. These include non-GAAP adjusted net income attributable to common shareholders of Frontier, free cash flow and operating cash flow. A reconciliation of the differences between non-GAAP adjusted net income attributable to common shareholders of Frontier, free cash flow and operating cash flow and the most comparable financial measures calculated and presented in accordance with GAAP is included in the tables that follow. The non-GAAP financial measures are by definition not measures of financial performance under GAAP and are not alternatives to operating income or net income attributable to common shareholders of Frontier as reflected in the statement of operations or to cash flow as reflected in the statement of cash flows and are not necessarily indicative of cash available to fund all cash flow needs. The non-GAAP financial measures used by the Company may not be comparable to similarly titled measures of other companies. The Company believes that the presentation of non-GAAP financial measures provides useful information to investors regarding the Company's financial condition and results of operations because these measures, when used in conjunction with related GAAP financial measures, (i) together provide a more comprehensive view of the Company's core operations and ability to generate cash flow, (ii) provide investors with the financial analytical framework upon which management bases financial, operational, compensation and planning decisions and (iii) presents measurements that investors and rating agencies have indicated to management are useful to them in assessing the Company and its results of operations. In addition, the Company believes that non-GAAP adjusted net income attributable to common shareholders of Frontier, free cash flow and operating cash flow, as the Company defines them, can assist in comparing performance from period to period, without taking into account factors affecting operating income or net income attributable to common shareholders of Frontier in the statement of operations, or cash flow reflected in the statement of cash flows, including changes in working capital and the timing of purchases and payments. The Company has shown adjustments to its financial presentations to exclude losses on the early extinguishment of debt, investment gains, tax benefits for the reversal of uncertain tax positions, discrete tax items, integration costs, severance costs and non-cash pension and other postretirement benefit costs, as disclosed in the attached Schedules A, B and C, because investors have indicated to management that such adjustments are useful to them in assessing the Company and its results of operations. Management uses these non-GAAP financial measures to (i) assist in analyzing the Company's underlying financial performance from period to period, (ii) evaluate the financial performance of its business units, (iii) analyze and evaluate strategic and operational decisions, (iv) establish criteria for compensation decisions, and (v) assist management in understanding the Company's ability to generate cash flow and, as a result, to plan for future capital and operational decisions. Management uses these non-GAAP financial measures in conjunction with related GAAP financial measures. These non-GAAP financial measures have certain shortcomings. In particular, free cash flow does not represent the residual cash flow available for discretionary expenditures, since items such as debt repayments and dividends are not deducted in determining such measure. Operating cash flow has similar shortcomings as interest, income taxes, capital expenditures, debt repayments and dividends are not deducted in determining this measure. Management compensates for the shortcomings of these measures by utilizing them in conjunction with their comparable GAAP financial measures. The information in this press release should be read in conjunction with the financial statements and footnotes contained in our documents filed with the U.S. Securities and Exchange Commission. Conference Call and Webcast The Company will host a conference call today at 9:00 A.M. Eastern time. In connection with the conference call and as a convenience to investors, the Company furnished today on a Current Report on Form 8-K certain materials regarding third quarter 2012 results. The conference call will be webcast and may be accessed at: http://investor.frontier.com/eventdetail.cfm?eventid=119395 A telephonic replay of the conference call will be available for one week beginning at 12:00 P.M. Eastern time, November 6, 2012 via dial-in at 888-203-1112 for U.S. and Canadian callers or, outside the U.S. and Canada, at 719-457-0820, passcode 2334836. A webcast replay of the call will be available at www.frontier.com/ir. About Frontier Communications Frontier Communications Corporation (NASDAQ: FTR) offers broadband, voice, satellite video, wireless Internet data access, data security solutions, bundled offerings and specialized bundles for residential customers, small businesses and home offices, and advanced business communications for medium and large businesses in 27 states. Frontier's approximately 15,250 employees are based entirely in the United States. More information is available at www.frontier.com and www.frontier.com/ir. Forward-Looking Statements This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management's views and assumptions regarding future events and business performance. Words such as “believe,” “anticipate,” “expect” and similar expressions are intended to identify forward-looking statements. Forward-looking statements (including oral representations) involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. These risks and uncertainties are based on a number of factors, including but not limited to: the risk that the growth opportunities from the Transaction may not be fully realized or may take longer to realize than expected; the effects of greater than anticipated competition requiring new pricing, marketing strategies or new product or service offerings and the risk that we will not respond on a timely or profitable basis; reductions in the number of our voice customers that cannot be offset by increases in broadband subscribers and sales of other products and services; the effects of competition from cable, wireless and other wireline carriers; our ability to maintain relationships with customers, employees or suppliers; the effects of ongoing changes in the regulation of the communications industry as a result of federal and state legislation and regulation, or changes in the enforcement or interpretation of such legislation and regulation; the effects of any unfavorable outcome with respect to any current or future legal, governmental or regulatory proceedings, audits or disputes; the effects of changes in the availability of federal and state universal funding to us and our competitors; our ability to adjust successfully to changes in the communications industry and to implement strategies for growth; continued reductions in switched access revenues as a result of regulation, competition or technology substitutions; our ability to effectively manage service quality in our territories and meet mandated service quality metrics; our ability to successfully introduce new product offerings, including our ability to offer bundled service packages on terms that are both profitable to us and attractive to customers; changes in accounting policies or practices adopted voluntarily or as required by generally accepted accounting principles or regulations; our ability to effectively manage our operations, operating expenses and capital expenditures, and to repay, reduce or refinance our debt; the effects of changes in both general and local economic conditions on the markets that we serve, which can affect demand for our products and services, customer purchasing decisions, collectability of revenues and required levels of capital expenditures related to new construction of residences and businesses; the effects of technological changes and competition on our capital expenditures and product and service offerings, including the lack of assurance that our network improvements will be sufficient to meet or exceed the capabilities and quality of competing networks; the effects of increased medical, pension and postemployment expenses and related funding requirements; changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments; the effects of state regulatory cash management practices that could limit our ability to transfer cash among our subsidiaries or dividend funds up to the parent company; our ability to successfully renegotiate union contracts in 2012 and thereafter; changes in pension plan assumptions and/or the value of our pension plan assets, which could require us to make increased contributions to the pension plan in 2013 and beyond; the effects of customer bankruptcies and home foreclosures, which could result in difficulty in collection of revenues and loss of customers; adverse changes in the credit markets or in the ratings given to our debt securities by nationally accredited ratings organizations, which could limit or restrict the availability, or increase the cost, of financing; our ability to pay dividends on our common shares, which may be affected by our cash flow from operations, amount of capital expenditures, debt service requirements, cash paid for income taxes and liquidity; and the effects of severe weather events such as hurricanes, tornadoes, ice storms or other natural or man-made disasters. These and other uncertainties related to our business are described in greater detail in our filings with the Securities and Exchange Commission, including our reports on Forms 10-K and 10-Q, and the foregoing information should be read in conjunction with these filings. We do not intend to update or revise these forward-looking statements to reflect the occurrence of future events or circumstances.   Frontier Communications CorporationConsolidated Financial Data               For the quarter ended     For the nine months endedSeptember 30,     June 30,       September 30,September 30,(Amounts in thousands, except per share amounts)2012201220112012     2011   Income Statement Data Revenue $ 1,252,469   $ 1,258,777   $ 1,290,939   $ 3,779,300   $ 3,959,891     Network access expenses 102,051 115,433 119,941 333,053 397,854 Other operating expenses (1) 572,348 539,911 571,388 1,663,842 1,729,824 Depreciation and amortization 298,416 307,047 351,907 962,763 1,062,150 Integration costs (2)   4,458     28,602     67,412     68,204     100,899   Total operating expenses   977,273     990,993     1,110,648     3,027,862     3,290,727     Operating income 275,196 267,784 180,291 751,438 669,164 Losses on early extinguishment of debt (245 ) (70,818 ) - (71,063 ) - Investment and other income (loss), net 4,602 8,804 836 18,994 10,039 Interest expense   172,188     172,054     165,755     509,104     500,034   Income before income taxes 107,365 33,716 15,372 190,265 179,169 Income tax expense (benefit)   35,739     11,717     (6,948 )   66,150     66,809   Net income (2) 71,626 21,999 22,320 124,115 112,360 Less: Income attributable to the noncontrolling interest in a partnership   4,626     4,010     1,925     12,358     4,993   Net income attributable to common shareholders of Frontier $ 67,000   $ 17,989   $ 20,395   $ 111,757   $ 107,367     Weighted average shares outstanding 991,295 991,183 990,259 990,300 989,725   Basic net income per share attributable tocommon shareholders of Frontier (3) $ 0.07 $ 0.02 $ 0.02 $ 0.11 $ 0.11   Non-GAAP adjusted net income per shareattributable to common shareholders of Frontier (3) (4) $ 0.07 $ 0.08 $ 0.05 $ 0.20 $ 0.17   Other Financial Data Capital expenditures - Business operations $ 195,034 $ 167,551 $ 222,530 $ 571,107 $ 636,569 Capital expenditures - Integration activities 10,828 12,209 43,655 38,768 62,641 Operating cash flow, as adjusted (4) 581,281 620,363 609,162 1,821,478 1,869,369 Free cash flow (4) 215,256 284,867 267,466 753,283 762,713 Dividends paid 99,845 99,851 186,588 299,547 559,803 Dividend payout ratio (5) 46 % 35 % 70 % 40 % 73 %   (1)   Includes severance costs of $6.8 million, $1.5 million and $3.6 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively, and $14.8 million and $14.6 million for the nine months ended September 30, 2012 and 2011, respectively. (2) Reflects integration costs of $4.5 million ($2.9 million after tax), $28.6 million ($18.1 million or $0.02 per share after tax) and $67.4 million ($41.6 million or $0.04 per share after tax) for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively. Reflects integration costs of $68.2 million ($42.7 million or $0.04 per share after tax) and $100.9 million ($62.3 million or $0.06 per share after tax) for the nine months ended September 30, 2012 and 2011, respectively. (3) Calculated based on weighted average shares outstanding. (4) Reconciliations to the most comparable GAAP measures are presented in Schedules A, B and C at the end of these tables. (5) Represents dividends paid divided by free cash flow, as defined in Schedule A.     Frontier Communications CorporationConsolidated Financial and Operating Data             For the quarter ended       For the nine months endedSeptember 30,       June 30,       September 30,September 30,(Amounts in thousands, except operating data)2012201220112012       2011   Selected Income Statement DataRevenue: Local and long distance services $ 556,353 $ 559,837 $ 605,593 $ 1,688,352 $ 1,858,451 Data and internet services 461,212 454,706 457,934 1,366,588 1,378,060 Other   94,929     97,337     79,379     289,143     251,281   Customer revenue 1,112,494 1,111,880 1,142,906 3,344,083 3,487,792 Switched access and subsidy   139,975     146,897     148,033     435,217     472,099   Total revenue $ 1,252,469   $ 1,258,777   $ 1,290,939   $ 3,779,300   $ 3,959,891     Other Financial and Operating Data   Revenue: Residential $ 531,397 $ 535,089 $ 560,913 $ 1,601,322 $ 1,726,383 Business   581,097     576,791     581,993     1,742,761     1,761,409   Customer revenue 1,112,494 1,111,880 1,142,906 3,344,083 3,487,792 Switched access and subsidy   139,975     146,897     148,033     435,217     472,099   Total revenue $ 1,252,469   $ 1,258,777   $ 1,290,939   $ 3,779,300   $ 3,959,891   Customers 3,223,557 3,275,354 3,494,294 3,223,557 3,494,294 Average monthly total revenue per customer $ 128.48 $ 126.83 $ 121.68 $ 126.73 $ 121.09 Average monthly customer revenue per customer $ 114.12 $ 112.03 $ 107.72 $ 112.14 $ 106.66   Residential customer metrics: Customers 2,932,163 2,978,896 3,174,915 2,932,163 3,174,915   Revenue $ 531,397 $ 535,089 $ 560,913 $ 1,601,322 $ 1,726,383 Average monthly residential revenue per customer (1) $ 58.72 $ 58.19 $ 57.52 $ 57.95 $ 57.49 Customer monthly churn 1.63 % 1.63 % 1.72 % 1.58 % 1.72 %   Business customer metrics: Customers 291,394 296,458 319,379 291,394 319,379 Revenue $ 581,097 $ 576,791 $ 581,993 $ 1,742,761 $ 1,761,409 Average monthly business revenue per customer $ 659.01 $ 642.38 $ 600.48 $ 645.52 $ 591.56   Access line metrics: Residential 3,025,928 3,130,090 3,344,758 3,025,928 3,344,758 Business   1,916,594     1,942,013     2,029,101     1,916,594     2,029,101   Total access lines   4,942,522     5,072,103     5,373,859     4,942,522     5,373,859     Average monthly total revenue per access line $ 83.38 $ 81.98 $ 79.22 $ 82.15 $ 79.21 Average monthly customer revenue per access line $ 74.06 $ 72.41 $ 70.14 $ 72.69 $ 69.77   Employees 15,250 15,332 15,254 15,250 15,254 Broadband subscribers 1,782,278 1,781,295 1,754,842 1,782,278 1,754,842 Video subscribers (2) 388,257 568,154 556,552 388,257 556,552 Switched access minutes of use (in millions) 4,481 4,771 4,626 13,769 14,412   (1)   Calculation excludes the Mohave Cellular Limited Partnership. (2) Decline in video subscribers is due to the loss of 203,100 DirecTV subscribers in the third quarter of 2012 as Frontier no longer provides DirecTV as part of its bundled packages.     Frontier Communications CorporationCondensed Consolidated Balance Sheet Data   (Amounts in thousands)               September 30, 2012December 31, 2011ASSETS Current assets: Cash and cash equivalents $ 1,099,489 $ 326,094 Accounts receivable, net 557,573 585,157 Restricted cash 54,967 - Other current assets   417,197   327,779 Total current assets 2,129,226 1,239,030   Restricted cash 42,357 144,680 Property, plant and equipment, net 7,482,900 7,547,523 Other assets - principally goodwill   8,184,003   8,498,535 Total assets $ 17,838,486 $ 17,429,768   LIABILITIES AND EQUITY Current liabilities: Long-term debt due within one year $ 596,545 $ 94,016 Accounts payable and other current liabilities   924,441   1,058,200 Total current liabilities 1,520,986 1,152,216   Deferred income taxes and other liabilities 3,756,501 3,602,577 Long-term debt 8,257,599 8,205,841 Equity   4,303,400   4,469,134 Total liabilities and equity $ 17,838,486 $ 17,429,768     Frontier Communications CorporationConsolidated Cash Flow Data   (Amounts in thousands)         For the nine months ended September 30,2012       2011   Cash flows provided by (used in) operating activities: Net income $ 124,115 $ 112,360 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 962,763 1,062,150 Stock based compensation expense 12,950 10,729 Pension/OPEB costs 24,220 22,515 Losses on early extinguishment of debt 71,063 - Other non-cash adjustments 7,040 (3,320 ) Deferred income taxes 59,794 20,219 Change in accounts receivable 19,941 16,162 Change in accounts payable and other liabilities (131,027 ) (36,458 ) Change in other current assets   9,426     68,297   Net cash provided by operating activities 1,160,285 1,272,654   Cash flows provided from (used by) investing activities: Capital expenditures - Business operations (571,107 ) (636,569 ) Capital expenditures - Integration activities (38,768 ) (62,641 ) Network expansion funded by Connect America Fund (854 ) - Grant funds received for network expansion from Connect America Fund 47,986 - Cash transferred from escrow 47,356 26,586 Other assets purchased and distributions received, net   (12,251 )   (4,350 ) Net cash used by investing activities (527,638 ) (676,974 )   Cash flows provided from (used by) financing activities: Long-term debt borrowings 1,100,000 - Financing costs paid (22,754 ) - Long-term debt payments (571,472 ) (78,990 ) Premium paid to retire debt (52,560 ) - Dividends paid (299,547 ) (559,803 ) Repayment of customer advances for construction, distributions to noncontrolling interests and other   (12,919 )   (2,333 ) Net cash provided from (used by) financing activities 140,748 (641,126 )   Increase/(Decrease) in cash and cash equivalents 773,395 (45,446 ) Cash and cash equivalents at January 1,   326,094     251,263     Cash and cash equivalents at September 30, $ 1,099,489   $ 205,817     Cash paid (received) during the period for: Interest $ 445,121 $ 447,645 Income taxes (refunds) $ 4,093 $ (16,247 )   Non-cash investing and financing activities: Financing obligation for contribution of real property to pension plan $ - $ 58,100 Reduction of pension obligation $ - $ (58,100 )     Schedule AFrontier Communications CorporationReconciliation of Non-GAAP Financial Measures           For the quarter ended       For the nine months endedSeptember 30,       June 30,       September 30,September 30,(Amounts in thousands)2012201220112012       2011   Net Income to Free Cash Flow;Net Cash Provided by Operating Activities   Net income $ 71,626 $ 21,999 $ 22,320 $ 124,115 $ 112,360   Add back: Depreciation and amortization 298,416 307,047 351,907 962,763 1,062,150 Income tax expense (benefit) 35,739 11,717 (6,948 ) 66,150 66,809 Integration costs 4,458 28,602 67,412 68,204 100,899 Pension/OPEB costs (non-cash) (1) (3,633 ) 15,450 5,955 24,220 22,515 Severance costs (2) 6,844 1,480 3,597 14,853 14,641 Stock based compensation 5,175 4,057 3,052 12,950 10,729   Subtract: Cash paid (refunded) for income taxes 4,301 161 (43,450 ) 4,093 (16,247 ) Losses on early extinguishment of debt (245 ) (70,818 ) - (71,063 ) - Other income (loss), net 4,279 8,591 749 15,835 7,068 Capital expenditures - Business operations (3)   195,034     167,551     222,530     571,107     636,569   Free cash flow (2)215,256284,867267,466753,283762,713   Add back: Deferred income taxes 32,636 11,394 (30,914 ) 59,794 20,219 Non-cash (gains)/losses, net 196 26,356 12,422 44,210 29,924 Other income (loss), net 4,279 8,591 749 15,835 7,068 Cash paid (refunded) for income taxes 4,301 161 (43,450 ) 4,093 (16,247 ) Capital expenditures - Business operations (3) 195,034 167,551 222,530 571,107 636,569   Subtract: Changes in current assets and liabilities 627 62,334 (52,688 ) 101,660 (48,001 ) Income tax expense (benefit) 35,739 11,717 (6,948 ) 66,150 66,809 Integration costs 4,458 28,602 67,412 68,204 100,899 Pension/OPEB costs (non-cash) (1) (3,633 ) 15,450 5,955 24,220 22,515 Severance costs (2) 6,844 1,480 3,597 14,853 14,641 Stock based compensation   5,175     4,057     3,052     12,950     10,729   Net cash provided by operating activities$402,492   $375,280   $408,423   $1,160,285   $1,272,654     (1)   Reflects pension and other postretirement benefit (OPEB) expense, net of capitalized amounts, of $17.1 million, $16.5 million and $14.8 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively, less cash pension contributions and certain OPEB costs/payments of $20.8 million, $1.0 million and $8.8 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively. Reflects pension and OPEB expense, net of capitalized amounts, of $49.5 million and $45.9 million for the nine months ended September 30, 2012 and 2011, respectively, less cash pension contributions and certain OPEB costs/payments of $25.3 million and $23.4 million for the nine months ended September 30, 2012 and 2011, respectively.   (2) The definition of free cash flow has been revised as of January 1, 2012 to add back severance costs, with all prior periods conformed to the current calculation. (3) Excludes capital expenditures for integration activities.     Schedule BFrontier Communications CorporationReconciliation of Non-GAAP Financial Measures         For the quarter ended September 30, 2012     For the quarter ended September 30, 2011(Amounts in thousands)                                 Non-cash Non-cash Operating Cash Flow and As Integration Pension/OPEB Severance As As Integration Pension/OPEB Severance AsOperating Cash Flow Margin Reported Costs Costs (1) Costs Adjusted Reported Costs Costs (1) Costs Adjusted   Operating Income $ 275,196 $ 4,458 $ (3,633 ) $ 6,844 $282,865 $ 180,291 $ 67,412 $ 5,955 $ 3,597 $257,255   Add back: Depreciation and amortization   298,416     -   -     -   298,416     351,907     -   -   -   351,907   Operating cash flow $ 573,612   $ 4,458 $ (3,633 ) $ 6,844 $581,281   $ 532,198   $ 67,412 $ 5,955 $ 3,597 $609,162     Revenue $ 1,252,469   $1,252,469   $ 1,290,939   $1,290,939     Operating income margin (Operating income divided by revenue)   22.0 %   22.6%   14.0 %   19.9%   Operating cash flow margin (Operating cash flow divided by revenue)   45.8 %   46.4%   41.2 %   47.2%   For the quarter ended June 30, 2012   Non-cash Operating Cash Flow and As Integration Pension/OPEB Severance AsOperating Cash Flow Margin Reported Costs Costs (1) Costs Adjusted   Operating Income $ 267,784 $ 28,602 $ 15,450 $ 1,480 $313,316   Add back: Depreciation and amortization   307,047     -   -     -   307,047   Operating cash flow $ 574,831   $ 28,602 $ 15,450   $ 1,480 $620,363     Revenue $ 1,258,777   $1,258,777     Operating income margin (Operating income divided by revenue)   21.3 %   24.9%   Operating cash flow margin (Operating cash flow divided by revenue)   45.7 %   49.3%   (1)   Reflects pension and other postretirement benefit (OPEB) expense, net of capitalized amounts, of $17.1 million, $16.5 million and $14.8 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively, less cash pension contributions and certain OPEB costs/payments of $20.8 million, $1.0 million and $8.8 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively.     Schedule B(continued)Frontier Communications CorporationReconciliation of Non-GAAP Financial Measures           For the nine months ended September 30, 2012     For the nine months ended September 30, 2011                                 Non-cash Non-cash Operating Cash Flow and As Integration Pension/OPEB Severance As As Integration Pension/OPEB Severance AsOperating Cash Flow Margin Reported Costs Costs (1) Costs Adjusted Reported Costs Costs (1) Costs Adjusted   Operating Income $ 751,438 $ 68,204 $ 24,220 $ 14,853 $858,715 $ 669,164 $ 100,899 $ 22,515 $ 14,641 $807,219   Add back: Depreciation and amortization   962,763     -   -   -   962,763     1,062,150     -   -   -   1,062,150   Operating cash flow $ 1,714,201   $ 68,204 $ 24,220 $ 14,853 $1,821,478   $ 1,731,314   $ 100,899 $ 22,515 $ 14,641 $1,869,369     Revenue $ 3,779,300   $3,779,300   $ 3,959,891   $3,959,891     Operating income margin (Operating income divided by revenue)   19.9 %   22.7%   16.9 %   20.4%   Operating cash flow margin (Operating cash flow divided by revenue)   45.4 %   48.2%   43.7 %   47.2%   (1)   Reflects pension and other postretirement benefit (OPEB) expense, net of capitalized amounts, of $49.5 million and $45.9 million for the nine months ended September 30, 2012 and 2011, respectively, less cash pension contributions and certain OPEB costs/payments of $25.3 million and $23.4 million for the nine months ended September 30, 2012 and 2011, respectively.     Schedule CFrontier Communications CorporationReconciliation of Non-GAAP Financial Measures     (Amounts in thousands, exceptper share amounts)           For the quarter endedSeptember 30, 2012       June 30, 2012       September 30, 2011                   Net income attributable to commonEarningsEarningsEarningsshareholders of FrontierNet IncomePer ShareNet IncomePer ShareNet IncomePer Share   GAAP, as reported $ 67,000 $ 0.07 $ 17,989 $ 0.02 $ 20,395 $ 0.02 Losses on early extinguishment of debt 154 - 44,474 0.04 - - Integration costs 2,916 - 18,105 0.02 41,627 0.04 Severance costs 4,476 - 937 - 2,221 - Gain on investment in Adelphia - - (6,191 ) (0.01 ) - - Reversal of uncertain tax positions   (7,769 )   (0.01 )   -     -     (14,000 )   (0.01 ) Non-GAAP, as adjusted (1)$66,777   $0.07   $75,314   $0.08   $50,243   $0.05       For the nine months endedSeptember 30, 2012September 30, 2011   Net income attributable to commonEarningsEarningsshareholders of FrontierNet IncomePer ShareNet IncomePer Share   GAAP, as reported $ 111,757 $ 0.11 $ 107,367 $ 0.11 Losses on early extinguishment of debt 44,628 0.05 - - Integration costs 42,722 0.04 62,305 0.06 Severance costs 9,445 0.01 9,041 0.01 Gain on investment in Adelphia (6,191 ) (0.01 ) - - Reversal of uncertain tax positions (7,769 ) (0.01 ) (14,000 ) (0.01 ) Discrete tax item   -     -     10,500     0.01   Non-GAAP, as adjusted (1)$194,592   $0.20   $175,213   $0.17     (1)   Non-GAAP, as adjusted may not sum due to rounding   INVESTOR:Gregory Lundberg, 203-614-5044VP, Investor Relations & Assistant Treasurergreg.lundberg@FTR.comorMEDIA:Brigid Smith, 203-614-5042AVP Corporate Communicationsbrigid.smith@FTR.com