SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 16, 1995
FRONTIER CORPORATION
(Exact name of registrant as specified in its charter)
New York 1-4166 16-0613330
-------------- ---------- ------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
180 South Clinton Avenue
Rochester, New York 14646
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code
(716) 777-1000
Item 2 Acquisition or Disposition of Assets
------ ------------------------------------
The Registrant and ALC Communications Corporation ("ALC") have
completed the closing of the merger of Frontier Subsidiary One,
Inc., a wholly-owned subsidiary of the Registrant, with and into
ALC, creating the fifth largest long distance carrier in U.S.
Also filed by this Report on Form 8-K are Unaudited Combined
Pro Forma Consolidated Financial Information and the Notes to
Unaudited Pro Forma Combined Financial Statements for Frontier
Corporation and ALC Communications Corporation.
As permitted by General Instruction F to Form 8-K, the
Registrant hereby incorporates by reference the information
contained in its Form 8-K dated August 16, 1995, its Form 8-K filed
April 12, 1995, Form 10-K of ALC Communications Corporation for the
year ended December 31, 1994 filed March 24, 1995, and its Form
10-Q filed on August 11, 1995.
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Item 7 Financial Statements and Exhibits
------ ---------------------------------
(a) Unaudited Pro Forma Combined Financial Information
Frontier Corporation, Enhanced TeleManagement, Inc., Schneider
Communications, Inc. and ALC Communications Corporation
- Unaudited Pro Forma Combined Balance Sheet: As of
June 30, 1995
Frontier Corporation, WCT Communications, Inc., Enhanced
TeleManagement, Inc. and Schneider Communications, Inc.
- Unaudited Pro Forma Combined Statement of Income: For the
Six Months Ended June 30, 1995 and 1994
Frontier Corporation, WCT Communications, Inc., Enhanced
TeleManagement, Inc. and Schneider Communications, Inc.
- Unaudited Pro Forma Combined Statement of Income: For
the Year Ended December 31, 1994
Frontier Corporation Pro Forma and ALC Communications
Corporation
- Unaudited Pro Forma Combined Statement of Income: For the
Six Months Ended June 30, 1995 and 1994
Frontier Corporation Pro Forma and ALC Communications
Corporation
- Unaudited Pro Forma Combined Statement of Income: For the
Year Ended December 31, 1994
Frontier Corporation and ALC Communications Corporation
- Unaudited Pro Forma Combined Statement of Income: For the
Years Ended December 31, 1993 and 1992
Frontier Corporation - Notes to Unaudited Pro Forma Combined
Financial Statements
(b) Exhibits
--------
23-1 Consent of Independent Accountants
(Price Waterhouse LLP)
23-2 Consent of Independent Accountants
(Ernst & Young LLP)
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Unaudited Pro Forma Combined Financial Statements
The following unaudited pro forma combined financial statements give
effect to the following transactions by Frontier Corporation
("Frontier"):
- The acquisition of WCT Communications, Inc. ("WCT") at a
purchase price of approximately $81.5 million, including
acquisition costs and $2.5 million for various non-compete
agreements. The transaction is accounted for using the
purchase method of accounting. The transaction closed on
May 18, 1995.
- The acquisition of Enhanced TeleManagement, Inc. ("ETI") at a
purchase price of approximately $29.2 million, including
acquisition costs. The transaction is accounted for using the
purchase method of accounting. The transaction closed on July 11,
1995.
- The acquisition of Schneider Communications, Inc. and its
approximately 81% majority owned subsidiary, LinkUSA Corporation
(collectively, "SCI"), at a purchase price of approximately $132.1
million, including acquisition costs and $3.3 million for various
non-compete agreements. The transaction is accounted for using
the purchase method of accounting. The transaction closed on
August 8, 1995.
- The merger with ALC Communications Corporation ("ALC") for an
estimated 79.8 million Frontier common shares in which Frontier
will exchange two shares of its common stock for each share of ALC
common stock. The transaction is accounted for using the pooling
of interests method of accounting. The transaction closed on
August 16, 1995.
With respect to Frontier, the unaudited pro forma combined financial
statements are based on the restated financial statements incorporated
by reference herein of Frontier's Current Report on Form 8-K dated
April 12, 1995, which reflect the acquisition on March 17, 1995, of
American Sharecom, Inc. ("ASI") under the pooling of interests method
of accounting, and Frontier's Quarterly Report on Form 10-Q for the
three months ended June 30, 1995.
Frontier has completed a business acquisition and disposition in 1995
which individually and in the aggregate are not significant. As
such, pro forma data on these transactions are not presented.
The unaudited pro forma combined balance sheet presents the financial
position of Frontier as of June 30, 1995, assuming that the
acquisitions of ETI and SCI and the merger with ALC occurred as of
June 30, 1995. Such pro forma information is based on the historical
balance sheets of Frontier, ETI, SCI and ALC as of that date. As
required by Rule 11-02(c)(1) of Regulation S-X, a balance sheet for
WCT is not presented as it is reflected in Frontier's balance sheet
as of June 30, 1995.
The unaudited pro forma combined statements of income reflect the
acquisitions by Frontier of WCT, ETI and SCI and the merger of
Frontier and ALC. As required by Rule 11-02 of Regulation S-X,
the unaudited pro forma combined statements of income first assume
the combination of WCT, ETI and SCI, which are accounted for under
the purchase method of accounting, as of the beginning of the most
recent fiscal year ended December 31, 1994, and the six months ended
June 30, 1995 and 1994. With respect to WCT, the unaudited pro forma
combined statements of income reflect its results of operations for
the most recent twelve month period ended December 31, 1994, for the
six months ended June 30, 1994, and for the approximately four and
one-half months ended May 18, 1995. WCT's results of operations for
the approximately one and one-half months ended June 30, 1995, are
reflected in Frontier's results of operations for the six months
ended June 30, 1995. With respect to ETI, the unaudited pro forma
combined statements of income reflect its results of operations for
the most recent twelve month period ended December 31, 1994, and for
the six months ended June 30, 1995 and 1994. With respect to SCI,
the unaudited pro forma combined statements of income reflect its
historical results of operations for the year ended December 31,
1994, and for the six months ended June 30, 1995 and 1994. These pro
forma results then assume the merger with ALC, which is accounted for
using the pooling of interests method of accounting, as of the
beginning of the three most recent fiscal years ended December 31,
1994, 1993 and 1992, and the six months ended June 30, 1995 and 1994,
to arrive at the unaudited pro forma combined statements of income
for Frontier. The unaudited pro forma combined statements of income
reflect results of operations of ALC for the most recent fiscal years
ended December 31, 1994, 1993 and 1992, and for the six months ended
June 30, 1995 and 1994.
The unaudited pro forma combined financial statements give effect
only to the pro forma adjustments, which reflect certain assumptions
on the bases described in the notes to these unaudited pro forma
combined financial statements. Nonrecurring charges, including
legal, investment banker fees of approximately $13 million and other
professional fees directly attributable to the merger with ALC, are
not included in the unaudited pro forma combined financial
statements. In addition, there will be certain other nonrecurring
charges that will result from combining operations of the
acquisitions and the merger. These other charges, which are not
included in the unaudited pro forma combined financial statements,
are anticipated to consist primarily of equipment write-offs
resulting from duplicative switching and transmission facilities,
relocation costs (including lease termination fees) and displaced
employee costs. Management is presently studying the integration of
operations after the merger, but other than identifying generally the
categories of items that will likely result in such nonrecurring
charges, it is too early in the process to make any representation of
the amount of such charges with respect to any such category. It is
possible that the aggregate amount of such charges may be material.
As the nonrecurring charges are incurred, they will be included in
the expenses of the combined operations.
The unaudited pro forma combined financial statements do not reflect
any synergies anticipated by Frontier's management as a result of any
or all of these combinations.
The unaudited pro forma data is presented for informational purposes
only and is not necessarily indicative of the results of operations
or financial position which would have been achieved had the
transactions been completed as of the beginning of the earliest
period presented, nor is it necessarily indicative of Frontier's
future results of operations or financial position.
The unaudited pro forma combined financial statements should be read
in conjunction with the historical financial statements of Frontier
(as restated to reflect the acquisition of ASI on March 17, 1995,
under the pooling of interests method of accounting and reported on
Frontier's Current Report on Form 8-K dated April 12, 1995) and of
ALC, which are incorporated by reference into this filing. The
historical financial statements of WCT, ETI and SCI are not required
to be presented in this document under Rule 3-05 of Regulation S-X
as WCT, ETI and SCI do not qualify as a significant subsidiary as
defined in Rule 1-02(w) of Regulation S-X.
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<TABLE>
<CAPTION>
FRONTIER CORPORATION, ENHANCED TELEMANAGEMENT, INC., SCHNEIDER COMMUNICATIONS, INC. AND ALC COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1995
(In thousands of dollars)
Frontier ETI SCI ALC Pro Forma Pro Forma
Historical Historical Historical Historical Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $157,581 $3,686 $2,461 $2,876 ($163,681)(c)(d) $2,923
Short-term investments 40 40
Accounts receivable 220,254 3,752 10,563 110,999 (3)(d) 345,565
Material and supplies 8,667 57 373 2,822 11,919
Prepayments and other 27,277 206 3,336 15,122 (150)(c) 45,791
---------- ---------- ---------- ---------- ---------- ----------
Total Current Assets 413,819 7,701 16,733 131,819 (163,834) 406,238
---------- ---------- ---------- ---------- ---------- ----------
Property, Plant and Equipment:
Total Property, Plant and Equipment 1,835,161 1,309 11,408 162,122 2,010,000
Less - Accumulated depreciation 840,270 84,311 924,581
---------- ---------- ---------- ---------- ---------- ----------
Net Property, Plant and Equipment 994,891 1,309 11,408 77,811 1,085,419
---------- ---------- ---------- ---------- ---------- ----------
Goodwill 251,576 2,022 88,446 129,652 (c)(d) 471,696
Deferred and Other Assets 171,866 197 3,429 59,190 12,918 (c)(d) 247,600
---------- ---------- ---------- ---------- ---------- ----------
Total Assets $1,832,152 $9,207 $33,592 $357,266 ($21,264) $2,210,953
========== ========== ========== ========== ========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY:
Current Liabilities:
Accounts payable $213,856 $3,753 $11,420 $103,133 $802 (c)(d) $332,964
Notes payable 55 37 92
Advance billings 11,143 774 11,917
Dividends payable 307 307
Long-term debt due within one year 5,951 218 6,169
Taxes accrued 19,229 (26) 4,580 12,151 (4,708)(d) 31,226
Interest accrued 12,619 12,619
---------- ---------- ---------- ---------- ---------- ----------
Total Current Liabilities 263,160 4,538 16,000 115,502 (3,906) 395,294
---------- ---------- ---------- ---------- ---------- ----------
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Long-Term Debt 553,898 94 4,484 83,395 641,871
Deferred Income Taxes 86,811 (43) (978) 1,346 (c)(d) 87,136
Deferred Employee Benefit Obligations 51,915 51,915
Minority Interests 617 617
Shareowners' Equity:
Common Stock 81,879 2,284 1 344 77,135 (a)(c)(d) 161,643
Capital in excess of par value 258,586 1,000 156,116 (80,420)(a)(c)(d) 335,282
Retained earnings (Accumulated deficit) 512,664 2,334 13,085 1,909 (15,419)(a)(c)(d) 514,573
---------- ---------- ---------- ---------- ---------- ----------
853,129 4,618 14,086 158,369 (18,704) 1,011,498
Less - Treasury stock at cost 147 147
---------- ---------- ---------- ---------- ---------- ----------
Common Shareowners' Equity 852,982 4,618 14,086 158,369 (18,704) 1,011,351
Preferred Stock 22,769 22,769
---------- ---------- ---------- ---------- ---------- ----------
Total Shareowners' Equity 875,751 4,618 14,086 158,369 (18,704) 1,034,120
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities and Shareowners' Equity $1,832,152 $9,207 $33,592 $357,266 ($21,264) $2,210,953
========== ========== ========== ========== ========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
FRONTIER CORPORATION, WCT COMMUNICATIONS, INC., ENHANCED TELEMANAGEMENT, INC. AND SCHNEIDER COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(In thousands of dollars, except per share data)
Frontier/WCT/
ETI/SCI
Frontier WCT ETI SCI Pro Forma Pro Forma
Historical Historical Historical Historical Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales $595,191 $59,841 $16,564 $44,575 $716,171
---------- ---------- ---------- ---------- ---------- ----------
Costs And Expenses:
Operating expenses 379,574 59,532 15,754 34,233 $6,089 (b)(c)(d) 495,182
Cost of goods sold 11,189 208 11,397
Depreciation 59,468 2,268 151 2,185 64,072
Taxes other than income taxes 22,547 239 46 2,157 24,989
Acquisition related charges 4,750 4,750
---------- ---------- ---------- ---------- ---------- ----------
Total Costs and Expenses 477,528 62,039 16,159 38,575 6,089 600,390
---------- ---------- ---------- ---------- ---------- ----------
Operating Income (Loss) 117,663 (2,198) 405 6,000 (6,089) 115,781
Interest expense 23,641 2,310 8 604 10,622 (b)(c)(d) 37,185
Other income and expense:
Allowance for funds used during construction 536 536
Gain (loss) on sale of assets/subsidiaries 4,826 (9) 4,817
Equity earnings from unconsolidated
interests in wireless interests 1,559 1,559
Interest income 6,503 104 71 3 6,681
Other income (expense), net (3,008) 81 5 (2,922)
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Taxes 104,438 (4,404) 549 5,395 (16,711) 89,267
Income taxes (benefit) 39,910 182 2,313 (5,030)(b)(c)(d) 37,375
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Income (Loss) From
Continuing Operations 64,528 (4,404) 367 3,082 (11,681) 51,892
Dividends on preferred stock 593 593
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Applicable to Common Stock $63,935 ($4,404) $367 $3,082 ($11,681) $51,299
========== ========== ========== ========== ========== ==========
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EARNINGS PER COMMON SHARE
Frontier/WCT/
ETI/SCI
Frontier Pro Forma
Historical Combined
Primary:
Income applicable to common stock $63,935 $51,299
Average common shares outstanding 81,936 81,936
---------- ----------
Earnings Per Common Share - Primary $0.78 $0.63
========== ==========
Fully Diluted:
Adjusted income applicable to common stock $64,115 $51,479
Adjusted average common shares outstanding 82,514 82,514
---------- ----------
Earnings Per Common Share - Fully Diluted $0.78 $0.62
========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
FRONTIER CORPORATION, WCT COMMUNICATIONS, INC., ENHANCED TELEMANAGEMENT, INC. AND SCHNEIDER COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(In thousands of dollars, except per share data)
Frontier/WCT/
ETI/SCI
Frontier WCT ETI SCI Pro Forma Pro Forma
Historical Historical Historical Historical Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales $554,667 $54,817 $13,808 $37,676 $660,968
---------- ---------- ---------- ---------- ---------- ----------
Costs And Expenses:
Operating expenses 349,893 59,520 13,757 32,660 $6,803 (b)(c)(d) 462,633
Cost of goods sold 11,914 79 11,993
Depreciation 60,521 1,649 117 1,778 64,065
Taxes other than income taxes 24,567 162 39 1,170 25,938
---------- ---------- ---------- ---------- ---------- ----------
Total Costs and Expenses 446,895 61,331 13,992 35,608 6,803 564,629
---------- ---------- ---------- ---------- ---------- ----------
Operating Income (Loss) 107,772 (6,514) (184) 2,068 (6,803) 96,339
Interest expense 21,937 1,662 3 571 8,498 (b)(c)(d) 32,671
Other income and expense:
Allowance for funds used during construction 556 556
Gain on sale of assets/subsidiaries 12,933 1,074 14,007
Equity earnings from unconsolidated
interests in wireless interests 483 483
Interest income 2,044 26 34 36 2,140
Other income (expense), net (2,270) 742 68 200 (1,260)
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Taxes 99,581 (7,408) (85) 2,807 (15,301) 79,594
Income taxes (benefit) 35,999 (1,694) (4) 1,345 (4,287)(b)(c)(d) 31,359
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Income (Loss) From
Continuing Operations 63,582 (5,714) (81) 1,462 (11,014) 48,235
Dividends on preferred stock 593 593
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Applicable to Common Stock $62,989 ($5,714) ($81) $1,462 ($11,014) $47,642
========== ========== ========== ========== ========== ==========
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EARNINGS PER COMMON SHARE
Frontier/WCT/
ETI/SCI
Frontier Pro Forma
Historical Combined
Primary:
Income applicable to common stock $62,989 $47,642
Average common shares outstanding 80,620 80,620
---------- ----------
Earnings Per Common Share - Primary $0.78 $0.59
========== ==========
Fully Diluted:
Adjusted income applicable to common stock $63,169 $47,822
Adjusted average common shares outstanding 81,137 81,137
---------- ----------
Earnings Per Common Share - Fully Diluted $0.78 $0.59
========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
FRONTIER CORPORATION, WCT COMMUNICATIONS, INC., ENHANCED TELEMANAGEMENT, INC. AND SCHNEIDER COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands of dollars, except per share data)
Frontier WCT ETI SCI Frontier/WCT/
Year Ended 12 Mos Ended 12 Mos Ended Year Ended ETI/SCI
12/31/94 12/31/94 12/31/94 12/31/94 Pro Forma Pro Forma
Historical Historical Historical Historical Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales $1,108,109 $131,197 $28,751 $76,615 $1,344,672
---------- ---------- ---------- ---------- ---------- ----------
Costs And Expenses:
Operating expenses 677,856 132,267 28,204 62,021 $13,606 (b)(c)(d) 913,954
Cost of goods sold 18,850 194 19,044
Depreciation 119,252 3,966 252 3,802 127,272
Taxes other than income taxes 47,050 367 74 2,430 49,921
---------- ---------- ---------- ---------- ---------- ----------
Total Costs and Expenses 863,008 136,600 28,724 68,253 13,606 1,110,191
---------- ---------- ---------- ---------- ---------- ----------
Operating Income (Loss) 245,101 (5,403) 27 8,362 (13,606) 234,481
Interest expense 43,741 4,134 12 1,038 16,995 (b)(c)(d) 65,920
Other income and expense:
Allowance for funds used during construction 1,096 1,096
Gain on sale of assets/subsidiaries 10,063 1,076 11,139
Equity earnings from unconsolidated
interests in wireless interests 3,185 3,185
Interest income 6,705 6,705
Other income (expense), net (26,982) 194 223 237 (26,328)
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Taxes 195,427 (9,343) 238 8,637 (30,601) 164,358
Income taxes (benefit) 72,503 (1,694) 121 3,961 (8,572)(b)(c)(d) 66,319
---------- ---------- ---------- ---------- ---------- ----------
Consolidated Income (Loss) From
Continuing Operations 122,924 (7,649) 117 4,676 (22,029) 98,039
Dividends on preferred stock 1,186 1,186
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Applicable to Common Stock $121,738 ($7,649) $117 $4,676 ($22,029) $96,853
========== ========== ========== ========== ========== ==========
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EARNINGS PER COMMON SHARE
Frontier/WCT/
ETI/SCI
Frontier Pro Forma
Historical Combined
Primary:
Income applicable to common stock $121,738 $96,853
Average common shares outstanding 81,285 81,285
---------- ----------
Earnings Per Common Share - Primary $1.50 $1.19
========== ==========
Fully Diluted:
Adjusted income applicable to common stock $122,098 $97,213
Adjusted average common shares outstanding 81,783 81,783
---------- ----------
Earnings Per Common Share - Fully Diluted $1.49 $1.19
========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
FRONTIER CORPORATION PRO FORMA AND ALC COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(In thousands of dollars, except per share data)
Frontier/WCT/
ETI/SCI
Pro Forma ALC Pro Forma Pro Forma
Combined Historical Adjustments Combined
<S> <C> <C> <C> <C>
Revenues and Sales $716,171 $380,660 $1,096,831
---------- ---------- ---------- ----------
Costs And Expenses:
Operating expenses 495,182 304,325 799,507
Cost of goods sold 11,397 11,397
Depreciation 64,072 7,734 71,806
Taxes other than income taxes 24,989 1,268 26,257
Acquisition related charges 4,750 4,750
---------- ---------- ---------- ----------
Total Costs and Expenses 600,390 313,327 913,717
---------- ---------- ---------- ----------
Operating Income 115,781 67,333 183,114
Interest expense 37,185 4,225 41,410
Other income and expense:
Allowance for funds used during construction 536 536
Gain (loss) on sale of assets/subsidiaries 4,817 (3) 4,814
Equity earnings from unconsolidated
interests in wireless interests 1,559 1,559
Interest income 6,681 1,048 7,729
Other income (expense), net (2,922) 38 (2,884)
---------- ---------- ---------- ----------
Income Before Taxes 89,267 64,191 153,458
Income taxes 37,375 24,000 61,375
---------- ---------- ---------- ----------
Consolidated Income From Continuing
Operations 51,892 40,191 92,083
Dividends on preferred stock 593 593
---------- ---------- ---------- ----------
Income Applicable to Common Stock $51,299 $40,191 $91,490
========== ========== ========== ==========
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EARNINGS PER COMMON SHARE
Frontier/WCT/
ETI/SCI
Pro Forma Pro Forma
Combined Combined
Primary:
Income applicable to common stock $51,299 $91,490
Average common shares outstanding 81,936 161,700
---------- ----------
Earnings Per Common Share - Primary $0.63 $0.57
========== ==========
Fully Diluted:
Adjusted income applicable to common stock $51,479 $91,670
Adjusted average common shares outstanding 82,514 162,278
---------- ----------
Earnings Per Common Share - Fully Diluted $0.62 $0.56
========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
FRONTIER CORPORATION PRO FORMA AND ALC COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(In thousands of dollars, except per share data)
Frontier/WCT/
ETI/SCI
Pro Forma ALC Pro Forma Pro Forma
Combined Historical Adjustments Combined
<S> <C> <C> <C> <C>
Revenues and Sales $660,968 $270,197 $931,165
---------- ---------- ---------- ----------
Costs And Expenses:
Operating expenses 462,633 215,584 678,217
Cost of goods sold 11,993 11,993
Depreciation 64,065 5,430 69,495
Taxes other than income taxes 25,938 (325) 25,613
---------- ---------- ---------- ----------
Total Costs and Expenses 564,629 220,689 785,318
---------- ---------- ---------- ----------
Operating Income 96,339 49,508 145,847
Interest expense 32,671 4,040 36,711
Other income and expense:
Allowance for funds used during construction 556 556
Gain on sale of assets/subsidiaries 14,007 97 14,104
Equity earnings from unconsolidated
interests in wireless interests 483 483
Interest income 2,140 422 2,562
Other income (expense), net (1,260) 99 (1,161)
---------- ---------- ---------- ----------
Income Before Taxes 79,594 46,086 125,680
Income taxes 31,359 16,600 47,959
---------- ---------- ---------- ----------
Consolidated Income From Continuing
Operations 48,235 29,486 77,721
Dividends on preferred stock 593 593
---------- ---------- ---------- ----------
Income Applicable to Common Stock $47,642 $29,486 $77,128
========== ========== ========== ==========
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EARNINGS PER COMMON SHARE
Frontier/WCT/
ETI/SCI
Pro Forma Pro Forma
Combined Combined
Primary:
Income applicable to common stock $47,642 $77,128
Average common shares outstanding 80,620 160,384
---------- ----------
Earnings Per Common Share - Primary $0.59 $0.48
========== ==========
Fully Diluted:
Adjusted income applicable to common stock $47,822 $77,308
Adjusted average common shares outstanding 81,137 160,901
---------- ----------
Earnings Per Common Share - Fully Diluted $0.59 $0.48
========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
FRONTIER CORPORATION PRO FORMA AND ALC COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands of dollars, except per share data)
Frontier/WCT/
ETI/SCI
Pro Forma ALC Pro Forma Pro Forma
Combined Historical Adjustments Combined
<S> <C> <C> <C> <C>
Revenues and Sales $1,344,672 $577,674 $1,922,346
---------- ---------- ---------- ----------
Costs And Expenses:
Operating expenses 913,954 458,122 1,372,076
Cost of goods sold 19,044 19,044
Depreciation 127,272 11,426 138,698
Taxes other than income taxes 49,921 1,453 51,374
---------- ---------- ---------- ----------
Total Costs and Expenses 1,110,191 471,001 1,581,192
---------- ---------- ---------- ----------
Operating Income 234,481 106,673 341,154
Interest expense 65,920 7,570 73,490
Other income and expense:
Allowance for funds used during construction 1,096 1,096
Gain on sale of assets/subsidiaries 11,139 13 11,152
Equity earnings from unconsolidated
interests in wireless interests 3,185 3,185
Interest income 6,705 1,657 8,362
Other income (expense), net (26,328) 131 (26,197)
---------- ---------- ---------- ----------
Income Before Taxes 164,358 100,904 265,262
Income taxes 66,319 36,575 102,894
---------- ---------- ---------- ----------
Consolidated Income From Continuing
Operations 98,039 64,329 162,368
Dividends on preferred stock 1,186 1,186
---------- ---------- ---------- ----------
Income Applicable to Common Stock $96,853 $64,329 $161,182
========== ========== ========== ==========
<PAGE>
<PAGE>
EARNINGS PER COMMON SHARE
Frontier/WCT/
ETI/SCI
Pro Forma Pro Forma
Combined Combined
Primary:
Income applicable to common stock $96,853 $161,182
Average common shares outstanding 81,285 161,049
---------- ----------
Earnings Per Common Share - Primary $1.19 $1.00
========== ==========
Fully Diluted:
Adjusted income applicable to common stock $97,213 $161,542
Adjusted average common shares outstanding 81,783 161,547
---------- ----------
Earnings Per Common Share - Fully Diluted $1.19 $1.00
========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FRONTIER CORPORATION AND ALC COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(In thousands of dollars, except per share data)
Frontier ALC Pro Forma Pro Forma
Historical Historical Adjustments Combined
<S> <C> <C> <C> <C>
Revenues and Sales $1,007,394 $445,042 $1,452,436
---------- ---------- ---------- ----------
Costs And Expenses:
Operating expenses 613,988 363,189 977,177
Cost of goods sold 20,819 20,819
Depreciation 116,491 9,776 126,267
Taxes other than income taxes 47,476 2,862 50,338
Software write-off 3,300 3,300
---------- ---------- ---------- ----------
Total Costs and Expenses 802,074 375,827 1,177,901
---------- ---------- ---------- ----------
Operating Income 205,320 69,215 274,535
Interest expense 46,648 11,010 57,658
Other income and expense:
Allowance for funds used during construction 1,330 1,330
Gain (loss) on sale of assets/subsidiaries 4,449 (27) 4,422
Equity earnings from unconsolidated
interests in wireless interests 1,296 1,296
Interest income 1,713 154 1,867
Other income (expense), net (23,369) 94 (23,275)
---------- ---------- ---------- ----------
Income Before Taxes 144,091 58,426 202,517
Income taxes 54,758 18,750 73,508
---------- ---------- ---------- ----------
Consolidated Income From Continuing
Operations 89,333 39,676 129,009
Dividends/accretion of discount on
preferred stock 1,187 817 2,004
---------- ---------- ---------- ----------
Income Applicable to Common Stock $88,146 $38,859 $127,005
========== ========== ========== ==========
<PAGE>
<PAGE>
EARNINGS PER COMMON SHARE
Frontier Pro Forma
Historical Combined
Primary:
Income applicable to common stock $88,146 $127,005
Average common shares outstanding 76,163 155,927
---------- ----------
Earnings Per Common Share - Primary $1.16 $0.81
========== ==========
Fully Diluted:
Adjusted income applicable to common stock $88,505 $127,364
Adjusted average common shares outstanding 76,682 156,446
---------- ----------
Earnings Per Common Share - Fully Diluted $1.15 $0.81
========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FRONTIER CORPORATION AND ALC COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(In thousands of dollars, except per share data)
Frontier ALC Pro Forma Pro Forma
Historical Historical Adjustments Combined
<S> <C> <C> <C> <C>
Revenues and Sales $880,141 $387,741 $1,267,882
---------- ---------- ---------- ----------
Costs And Expenses:
Operating expenses 516,891 336,802 853,693
Cost of goods sold 21,634 21,634
Depreciation 115,682 9,538 125,220
Taxes other than income taxes 44,947 608 45,555
---------- ---------- ---------- ----------
Total Costs and Expenses 699,154 346,948 1,046,102
---------- ---------- ---------- ----------
Operating Income 180,987 40,793 221,780
Interest expense 50,217 16,897 67,114
Other income and expense:
Allowance for funds used during construction 1,309 1,309
Gain (loss) on sale of assets/subsidiaries (699) (699)
Equity loss from unconsolidated interests
in wireless interests (661) (661)
Interest income 2,095 122 2,217
Other income (expense), net (15,619) 207 (15,412)
---------- ---------- ---------- ----------
Income Before Taxes 117,894 23,526 141,420
Income taxes 44,067 9,700 53,767
---------- ---------- ---------- ----------
Consolidated Income From Continuing
Operations 73,827 13,826 87,653
Dividends/accretion of discount/accretion of
contract payment on preferred stock 1,188 4,382 5,570
---------- ---------- ---------- ----------
Income Applicable to Common Stock $72,639 $9,444 $82,083
========== ========== ========== ==========
<PAGE>
<PAGE>
EARNINGS PER COMMON SHARE
Frontier Pro Forma
Historical Combined
Primary:
Income applicable to common stock $72,639 $82,083
Average common shares outstanding 75,348 155,112
---------- ----------
Earnings Per Common Share - Primary $0.96 $0.53
========== ==========
Fully Diluted:
Adjusted income applicable to common stock $73,009 $82,453
Adjusted average common shares outstanding 75,876 155,640
---------- ----------
Earnings Per Common Share - Fully Diluted $0.96 $0.53
========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
</TABLE>
<PAGE>
<PAGE>
FRONTIER CORPORATION
Notes to Unaudited Pro Forma Combined Financial Statements
Note 1 - Basis of Presentation:
The unaudited pro forma combined statements of income and balance
sheet reflect Frontier's acquisitions of WCT, ETI and SCI and the
merger with ALC. As required by Rule 11-02 of Regulation S-X, the
unaudited pro forma combined statements of income first assume the
combination of WCT, ETI and SCI, which are accounted for under the
purchase method of accounting, as of the beginning of the most recent
fiscal year ended December 31, 1994, and the six months ended June
30, 1995 and 1994. With respect to WCT, the unaudited pro forma
combined statements of income reflect its results of operations for
the most recent twelve month period ended December 31, 1994, for the
six months ended June 30, 1994, and for the approximately four and
one-half months ended May 18, 1995. WCT's results of operations for
the approximately one and one-half months ended June 30, 1995, are
reflected in Frontier's results of operations for the six months
ended June 30, 1995. With respect to ETI, the unaudited pro forma
combined statements of income reflect its results of operations for
the most recent twelve month period ended December 31, 1994, and for
the six months ended June 30, 1995 and 1994. With respect to SCI,
the unaudited pro forma combined statements of income reflect its
historical results of operations for the year ended December 31,
1994, and for the six months ended June 30, 1995 and 1994. These pro
forma results then assume the merger with ALC, which is accounted for
using the pooling of interests method of accounting, as of the
beginning of the three most recent fiscal years ended December 31,
1994, 1993 and 1992, and the six months ended June 30, 1995 and 1994,
to arrive at the unaudited pro forma combined statements of income
for Frontier. The unaudited pro forma combined statements of income
reflect results of operations of ALC for the most recent fiscal years
ended December 31, 1994, 1993 and 1992, and for the six months ended
June 30, 1995 and 1994.
The unaudited pro forma combined balance sheet presents the financial
position of Frontier as of June 30, 1995, assuming that the
acquisitions of ETI and SCI and the merger with ALC occurred as of
June 30, 1995. Such pro forma information is based on the historical
balance sheets of Frontier, ETI, SCI and ALC as of that date. As
required by Rule 11-02(c)(1) of Regulation S-X, a balance sheet for
WCT is not presented as it is reflected in Frontier's balance sheet
as of June 30, 1995.
Frontier's management believes that the assumptions used in preparing
the unaudited pro forma combined financial statements provide a
reasonable basis for presenting all of the significant effects of its
transactions (other than any synergies anticipated by Frontier's
management, nonrecurring charges directly attributable to the merger
with ALC and nonrecurring charges that will result from combining
operations), that the pro forma adjustments give appropriate effect to
those assumptions and that the pro forma adjustments are properly
applied in the unaudited pro forma combined financial statements.
Certain reclassifications have been made to WCT's, ETI's, SCI's and
ALC's historical financial statements to conform to Frontier's
financial statement presentation.
<PAGE>
<PAGE>
Note 2 - Pro Forma Adjustments:
Unaudited pro forma adjustments consist of the following:
a. Merger with ALC Communications Corporation:
The pro forma adjustment to the balance sheet reflects the
issuance by Frontier of an estimated 79.8 million additional
shares of Frontier common stock in the merger, based on the
assumption that all outstanding ALC stock options and ALC warrants
(other than one series of ALC warrants which are substantially
"out of the money") are exercised for shares of ALC common stock
prior to the merger and using the "treasury stock" method with
respect to the use of the proceeds from such exercises. The pro
forma adjustment to the balance sheet reflects the issuance of
these shares. The pro forma earnings per share calculation for
all periods in which ALC is presented include the 79.8 million
additional shares of Frontier common stock as outstanding for the
entire period.
b. Acquisition of WCT Communications, Inc.:
Frontier exchanged approximately $81.5 million in cash, including
acquisition costs, in return for the stock of WCT. In addition,
an obligation in the amount of $2.5 million for various non-compete
agreements will be paid subsequent to the closing. The transaction
is accounted for using the purchase method of accounting.
The purchase price is allocated to the net assets acquired using
the assumption that the net book basis of the long term assets is
reflective of their fair value. The fair value of the purchased
customer base ($7.0 million) is calculated using a discounted cash
flow of estimated revenues and expenses based on historical data
from WCT and current industry projections. The purchased customer
base is amortized over five years. As part of the agreement,
non-compete agreements ($2.5 million) were negotiated and are
amortized over four to five years. Goodwill ($93.6 million) is
calculated as the difference between the purchase price and the
fair value of the net assets acquired and is amortized over 25
years.
The pro forma adjustment to operating expenses in the statement of
income for the year ended December 31, 1994, and for the six
months ended June 30, 1995 and 1994, represents the amortization
of purchased customer base, non-compete agreements and goodwill.
As Frontier did not have enough cash and cash equivalents as of
January 1, 1994, to complete the transaction without incurring
additional debt, the pro forma adjustment to interest expense in
the statement of income for the year ended December 31, 1994, and
for the six months ended June 30, 1994, reflects the assumed
issuance of approximately $81.5 million in debt securities at
Frontier's effective borrowing rate of 7% as of January 1, 1994.
Frontier's effective borrowing rate of 8.75% as of January 1,
1995, is used to calculate the pro forma adjustment to interest
expense for the six months ended June 30, 1995.
<PAGE>
<PAGE>
Frontier's statutory tax rate of 35% is used to calculate the tax
effect of the unaudited pro forma combined statement of income
adjustments, excluding the impact of nondeductible goodwill.
c. Acquisition of Enhanced TeleManagement, Inc.:
Frontier exchanged approximately $29.2 million in cash, including
acquisition costs, in return for the stock of ETI. The
transaction is accounted for using the purchase method of
accounting.
The purchase price is allocated to the net assets acquired using
the assumption that the net book basis of the long term assets is
reflective of their fair value. The fair value of the purchased
customer base ($1.8 million) is calculated using a discounted cash
flow of estimated revenues and expenses based on historical data
from ETI and current industry projections. The purchased customer
base is amortized over five years. Goodwill ($24.6 million) is
calculated as the difference between the purchase price and the
fair value of the net assets acquired and is amortized over 25
years.
The pro forma adjustment to operating expenses in the statement of
income for the year ended December 31, 1994, and for the six
months ended June 30, 1995 and 1994, represents the amortization
of purchased customer base and goodwill. As Frontier did not have
enough cash and cash equivalents as of January 1, 1994, to
complete the transaction without incurring additional debt, the
pro forma adjustment to interest expense in the statement of
income for the year ended December 31, 1994, and for the six
months ended June 30, 1994, reflects the assumed issuance of
approximately $29.2 million in debt securities at Frontier's
effective borrowing rate of 7% as of January 1, 1994. Frontier's
effective borrowing rate of 8.75% as of January 1, 1995, is used
to calculate the pro forma adjustment to interest expense for the
six months ended June 30, 1995.
Frontier's statutory tax rate of 35% is used to calculate the tax
effect of the unaudited pro forma combined statement of income
adjustments, excluding the impact of nondeductible goodwill.
d. Acquisition of Schneider Communications, Inc. and LinkUSA
Corporation:
Frontier exchanged approximately $132.1 million in cash, including
acquisition expenses, in return for the stock of Schneider
Communications, Inc. and its approximately 81% majority owned
subsidiary, LinkUSA Corporation. In addition, an obligation in
the amount of $.2 million for a non-compete agreement will be paid
subsequent to the closing. The transaction is accounted for using
the purchase method of accounting.
<PAGE>
<PAGE>
The purchase price is allocated to the net assets acquired using
the assumption that the net book basis of the long term assets is
reflective of their fair value. The fair value of the purchased
customer base ($7.8 million) is calculated using a discounted cash
flow of estimated revenues and expenses based on historical data
from SCI and current industry projections. The purchased customer
base is amortized over five years. As part of the agreement,
non-compete agreements ($3.3 million) were negotiated and are
amortized over two to five years. Goodwill ($106.8 million) is
calculated as the difference between the purchase price and the
fair value of the net assets acquired and is amortized over 25
years.
The pro forma adjustment to operating expenses in the statement of
income for the year ended December 31, 1994, and for the six
months ended June 30, 1995 and 1994, represents the amortization
of purchased customer base, non-compete agreements and goodwill.
As Frontier did not have enough cash and cash equivalents as of
January 1, 1994, to complete the transaction without incurring
additional debt, the pro forma adjustment to interest expense in
the statement of income for the year ended December 31, 1994, and
for the six months ended June 30, 1994, reflects the assumed
issuance of approximately $132.1 million in debt securities at
Frontier's effective borrowing rate of 7% as of January 1, 1994.
Frontier's effective borrowing rate of 8.75% as of January 1,
1995, is used to calculate the pro forma adjustment to interest
expense for the six months ended June 30, 1995.
Frontier's statutory tax rate of 35% is used to calculate the tax
effect of the unaudited pro forma combined statement of income
adjustments, excluding the impact of deductible purchased customer
base, non-compete agreements and goodwill which are tax effected
at SCI's effective tax rate of 40%.
<PAGE>
<PAGE>
e. Summary of Pro Forma Adjustments:
The following table summarizes the pro forma adjustments reflected on the
unaudited pro form combined balance sheet for the transactions outlined above:
<TABLE>
<CAPTION>
June 30, 1995
ETI SCI ALC Total
<S> <C> <C> <C> <C>
Cash:
Paid at closing ($29,194) ($132,050) ($161,244)
Other (2,437) (2,437)
-------- -------- --------
(29,194) (134,487) (163,681)
Goodwill:
At closing 24,585 106,783 131,368
Other (1,716) (1,716)
-------- -------- --------
24,585 105,067 129,652
Deferred and other assets:
Non-compete agreements 3,300 3,300
Customer base 1,778 7,840 9,618
-------- -------- --------
1,778 11,140 12,918
Accounts payable:
Non-compete agreements 200 200
Payables not assumed (941) (941)
Other 1,543 1,543
-------- -------- --------
1,543 (741) 802
Taxes accrued:
Liabilities not assumed (4,708) (4,708)
Deferred income taxes:
Associated with customer base 711 711
Assets not acquired 1,252 1,252
Associated with other accounts payable (617) (617)
-------- -------- --------
94 1,252 1,346
Other purchase accounting adjustments:
Accounts receivable (3) (3)
Prepayments and other (150) (150)
Common stock:
Cancelled (2,284) (1) (344) (2,629)
Issued 79,764 79,764
-------- -------- -------- --------
(2,284) (1) 79,420 77,135
Capital in excess of par value:
Cancelled (1,000) (156,116) (157,116)
Issued 76,696 76,696
-------- -------- --------
(1,000) (79,420) (80,420)
Retained earnings:
Eliminated (2,334) (13,085) (15,419)
</TABLE>
<PAGE>
<PAGE>
The following table summarizes the pro forma adjustments reflected on
the unaudited pro forma combined statements of income for the
transactions outlined above:
<TABLE>
<CAPTION>
WCT ETI SCI ALC Total
Six Months Ended 6/30/95
<S> <C> <C> <C> <C>
Operating expenses:
Amortization $2,140 $669 $3,280 $6,089
Interest 3,568 1,277 5,777 10,622
Income taxes (1,249) (447) (3,334) (5,030)
Six Months Ended 6/30/94
Operating expenses:
Amortization 2,854 669 3,280 6,803
Interest 2,854 1,022 4,622 8,498
Income taxes (999) (358) (2,930) (4,287)
Year Ended 12/31/94
Operating expenses:
Amortization 5,708 1,339 6,559 13,606
Interest 5,708 2,043 9,244 16,995
Income taxes (1,998) (715) (5,859) (8,572)
</TABLE>
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned hereunto duly authorized.
Frontier Corporation
(Registrant)
/s/ Richard A. Smith
Dated: August 18, 1995 By: ----------------------------
Richard A. Smith,
Controller
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
23-1 Consent of Independent Accountants Filed Herewith
(Price Waterhouse LLP)
23-2 Consent of Independent Accountants Filed Herewith
(Ernst & Young LLP)
<PAGE>
EXHIBIT 23-1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statement on
Form S-3 (File Nos. 33-40824, 33-69420, 33-61784 and 33-57895),
Form S-4 (File No. 33-61992 and 33-61047) and in the Registration
Statement on Form S-8 (File Nos. 33-67430, 33-67432, 33-67324,
33-51331, 33-51885, 33-52025, 33-54511, 33-54519, 33-59579 and
33-61855) of Frontier Corporation of our report dated January 16,
1995, except as to the pooling of interests with American
Sharecom, Inc. which is as of March 17, 1995, and which appears
in the Current Report on Form 8-K of Frontier Corporation dated
April 12, 1995.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Rochester, New York
August 18, 1995
<PAGE>
EXHIBIT 23-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3
(File Nos. 33-40824, 33-69420, 33-61784 and 33-57895), Form S-4
(File No. 33-61992 and 33-61047) and in the Registration
Statements on Form S-8 (File Nos. 33-67430, 33-67432, 33-67324,
33-51331, 33-51885, 33-52025, 33-54511, 33-54519, 33-59579 and
33-61855) of Frontier Corporation of our report dated January 20,
1995 on the consolidated financial statements of ALC
Communications Corporation and subsidiary which is included in
the Form 10-K of ALC Communications Corporation filed with the
Securities and Exchange Commission on March 24, 1995, which Form
10-K is incorporated by reference in the Current Report on Form
8-K of Frontier Corporation dated August 18, 1995.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Detroit, Michigan
August 18, 1995
