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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) December 17, 1996
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 5 Other Events
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The Registrant announced that it expects long distance revenue
in the fourth quarter to be in the range of $400 million.
As permitted by General Instruction F to Form 8-K, the
Registrant incorporates by reference the information contained in
the press release which is filed as an Exhibit to this Report on
Form 8-K.
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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/Barbara J. LaVerdi
Dated: December 17, 1996 By: -------------------------
Barbara J. LaVerdi
Assistant Secretary
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EXHIBIT INDEX
Exhibit Number Description
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99 Press Release dated Filed herewith
December 17, 1996 regarding
Frontier Corporation expects
long distance revenue in the
fourth quarter to be in the
range of $400 million
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Frontier Corporation
FRONTIER PRESS RELEASE 180 South Clinton Avenue
Rochester, New York 14646
DATE: December 17, 1996
CONTACT: Louis L. Massaro, Chief Financial Officer, 716-777-7940
Philip H. Yawman, 716-777-6179 (investors)
Michele D. Sadwick, 716-777-6021 (media)
SUMMARY: FRONTIER CORPORATION EXPECTS LONG DISTANCE REVENUE IN
THE FOURTH QUARTER TO BE IN THE RANGE OF $400 MILLION
Rochester, New York -- December 17, 1996 -- Frontier Corporation (NYSE:FRO)
announced today that it expects long distance revenue in the fourth quarter
to be in the range of $400 million and below current analyst expectations.
Further, expenses during the quarter will be impacted by additional selling,
general, and administrative (SG&A) costs incurred to better position the
company for future growth and to meet the challenges of increased
competition. As a result, Frontier's reported EPS from recurring
operations are expected to be in the range of $.30 to $.34 in the fourth
quarter.
Long distance revenue in the fourth quarter has been impacted by a
combination of factors including: a disappointing response to the company's
re-marketing of its "dial-around" service; faster than expected migration
of one-plus traffic and slower growth of enhanced services with the
company's largest wholesale customer; a delay in prepaid card program
distribution; and lower customer retention primarily in the wholesale and
consumer segments.
"We are in a period of transition at Frontier as we become less revenue
dependent on a large wholesale customer, as we launch new initiatives in
prepaid calling cards, enhanced services and bundled local and long
distance products, and as we
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expand our presence in the retail small- to medium-sized business market,"
stated Ronald L. Bittner, Chairman and CEO. "In just the past couple of
weeks we have signed several new contracts that support our basic business
strategy and that should stimulate revenue growth and create shareowner
value. In the near term, we're experiencing additional SG&A expenses that
are being incurred ahead of the anticipated revenue streams from these new
sources."
The additional SG&A expenses are associated with advertising campaigns
developed to increase awareness of Frontier's brand name in the marketplace;
sales and marketing support for new product initiatives such as prepaid
calling cards and facilities based local service; and headcount increases
in the field sales organization. The number of sales people selling
dedicated services to small- to medium-size businesses has doubled during
the past several months.
The revenue shortfall is largely attributable to the following four
factors:
o As previously announced, Frontier recently began the re-marketing
of its Budget Call product, a five-digit dial-around product targeted at
low volume residential customers. The results of the re-marketing programs
are running below expectations, and combined with increased competitive
pressures in this market segment, Frontier has experienced increased
attrition for this product during the past few months.
o Frontier's largest wholesale customer has continued to rapidly
migrate its one-plus traffic off of the company's network during the
quarter and this process is nearly complete. Additionally, the rate of
growth from other enhanced services that Frontier continues to provide
to this carrier has slowed during the quarter.
o Frontier is aggressively enhancing the capabilities and capacity
of its existing network platforms and expanding its marketing efforts to
take advantage of the significant revenue opportunity associated with the
sale of prepaid calling cards.
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Frontier had anticipated increased revenue from prepaid services would
begin to have a positive impact on revenue in the fourth quarter. It is
now anticipated that the revenue impact from previously signed contracts
will be realized beginning early in 1997.
Additionally, Frontier has a significant backlog of commitments for the
distribution of its prepaid product. The company announced last week its
largest prepaid contract to date when it entered into a five-year,
exclusive agreement with Scoreboard Inc., to develop and market prepaid
calling cards featuring prominent sports figures. The contract is
expected to generate more than $100 million in revenue over the five year
period.
o Frontier has been successfully generating new sales as part of
its "up-market" strategy, but is experiencing lower retention of its
existing customers, particularly in the wholesale segment, which has
dampened net revenue growth. "Churn is the achilles heel of our industry,"
stated Bittner. "We must and will make improvements in protecting our
customer base from competitive pressures. We're re-doubling the efforts
of our Client Services group, whose primary charter is to service our
existing customers. We expect that our accelerating efforts to offer bundled
services will also provide us greater retention of our customer base."
The shortfall of fourth quarter revenue, combined with rapid migration
of one-plus traffic from Frontier's largest wholesale customer has resulted
in the fixed costs of Frontier's network having to be absorbed over a
smaller than anticipated revenue and minute volume. Consequently, the
gross margin will be disproportionately impacted by the revenue shortfall
in the fourth quarter.
Frontier has launched other new products and initiatives that will begin
generating incremental revenue in 1997. The company recently began
offering bundled local and long distance service as a facilities-based
Alternative Local Exchange Company (A-LEC) in New York City and announced
that it will team up with
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Cox Communications to offer long distance services in select markets
served by Cox. These two initiatives represent examples of new sources
of revenue growth and highlight Frontier's unique position in the
marketplace to provide integrated services by leveraging its existing
assets and partnering with other providers.
Bittner stated that the company will work quickly to address the
circumstances that led to this announcement. A team of senior managers
led by Bittner has been assigned to immediately reassess Frontier's
existing cost structure in its long distance business. This effort should
insure that the costs of the network are more consistent with existing
traffic volumes and that SG&A expenses, necessary for growth, are incurred
prudently.
"We believe that it will take 90 to 120 days to make many of the cost
structure changes necessary to bring our overall cost level into alignment
with our revenue performance. Consequently, we are targeting earnings
growth from recurring operations to be in the range of 10 percent for 1997,"
said Bittner.
"We've reviewed our business plan against the opportunity set for
Frontier in the rapidly developing telecommunications industry, and we're
confident that we can grow faster and more profitably than we are today.
We will recommit ourselves to the achievement of that objective," he
concluded.
As previously announced, Frontier will record a one-time charge of
$65 million, or $.24 per share after taxes in the fourth quarter. The
charge will reflect the curtailment of certain company pension plans;
unrecoverable costs and reserves for the development of proprietary
software and services at ConferTech, a subsidiary company of Frontier
Corporation; and the resolution of prior period billing disputes on
international traffic with other connecting carriers.
The statements made in this press release, other than historical
financial results, may be forward-looking in nature. Actual results may
differ materially from those projected in
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forward-looking statements. We believe that our primary risk factors
include, but are not limited to: changes in the overall economy; technology;
the number and size of competitors in our markets; law and regulatory
policy; and the mix of products and services offered in our target markets.
Additional information concerning these and other potential important
factors can be found within our SEC Filings. You should evaluate any
statements in light of these important factors.
Frontier Corporation (NYSE:FRO) is the parent company whose long
distance, local telephone and wireless communications subsidiaries provide
a range of integrated services to customers. Frontier is a Fortune 500
company with annualized revenues of more than $2.5 billion. With more
than 8,500 employees and 150 sales locations nationwide, Frontier is the
fifth largest long distance company in the United States.
You can now receive a faxed copy of any Frontier Corporation press
release dating back to December 1995, free of charge, 24 hours a day.
Call 1-800-758-5804, extension 762302. An automated system will provide
you with instructions.
Visit Frontier Corporation's home page on the World Wide Web:
http://www.frontiercorp.com
