Frontier Communications Reports Higher Q3 Profit; Tops Estimate

(RTTNews) - Tuesday, telecom services provider Frontier Communications Corp. (FTR | Quote | Chart | News | PowerRating), reported an increase in net income for the third quarter. The higher profit is attributable primarily to the higher operating margins as well as a gain on debt repurchases, which was partially offset by an increase in interest expense.

Net income for the quarter increased by 11% to $52.74 million or $0.17 per share from $47 million or $0.15 per share in the year-ago period. On average, thirteen analysts polled by Thomson Reuters expected the company to earn $0.15 per share. Analysts' estimates typically exclude special items.

The Stamford, Connecticut-based company reported that the total operating income for the quarter increased by 5% to $172.49 million from $164.24 million in the comparable period year-ago. Operating income margin for the third quarter was 32.7%, compared with 29.4% in the prior year period.

Revenue for the third quarter declined by 6% to $526.81 million from $557.87 million in the year-ago period. Ten Wall Street analysts estimated revenues of $530.35 million for the quarter.

According to the company, consistent with recently adopted new accounting rules under SFAS No. 141R, "Business Combinations," acquisition and integration costs of approximately $3.7 million or $0.01 per share after tax were incurred and expensed during the third quarter of 2009 in connection with the previously announced pending acquisition of approximately 4.8 million access lines as of December 31, 2008 from Verizon Communications Inc.

Interest expense incurred by the company for the quarter increased by 7% to $96.6 million from $90.3 million in the third quarter of 2008. Interest expense increased due to the registered offering, completed in April, of $600.0 million aggregate principal amount of 8.25% senior unsecured notes due 2014. Frontier said that it received net proceeds of approximately $538.8 million from the offering which it used primarily to retire debt during the year. The company said that the interest expense was temporarily impacted by the timing of our refinancing activities.

Frontier said that in October, it completed a registered offering of $600.0 million aggregate principal amount of 8.125% senior unsecured notes due 2018. It received net proceeds of approximately $577.6 million from offering which was used, together with cash on hand, to finance a cash tender offer to purchase the company's outstanding 9.250% Senior Notes due 2011 and its outstanding 6.250% Senior Notes due 2013. The company said that it used the proceeds from the financing plus cash on hand to repurchase $647.8 million principal amount of debt under the cash tender offer, resulting in a loss on the early retirement of debt of approximately $54.0 million to be recognized in the fourth quarter of 2009.

According to the company, net investment and other income, for the quarter reflects a net gain of $4.1 million recognized on the early retirement of the company's debt. As of September 30, Frontier retired early approximately $360.8 million principal amount of debt for $353 million, and recorded a gain of $7.8 million for the first nine months of 2009.

Frontier said that capital expenditures were $54.1 million for the third quarter and $164.5 million for the first nine months of the year, including $2.6 million through September 30, related to Verizon integration activities.

Frontier said that it added approximately 7,500 net High-Speed Internet customers during the quarter and had 621,300 High-Speed Internet customers at September 30. Also, it added approximately 7,200 video customers during the quarter and had 164,500 video customers at September 30.

For the full year of 2009, the company revised its previously reported expectations. According to the revised expectations, capital expenditures, excluding those which are acquisition related, will be within a range of $240.0 million - $250.0 million and free cash flow, excluding acquisition and integration costs and capital expenditures, will be within a range of $470.0 million - $485.0 million.

The company's year-to-date net income declined by 22% to $116.38 million or $0.37 per share from $148.36 million or $0.46 per share in the prior year period. Year-to-date revenue declined by 5% to $1.59 billion from $1.68 billion in the prior year period.

FTR is currently trading on the New York Stock Exchange at $7.21, down $0.06 or 0.83%.

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