Frontier Communications 2008 Annual Report Download

Download and view the complete annual report

Please find the complete 2008 Frontier Communications annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 99

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99

FRONTIER COMMUNICATIONS CORPORATION
2008 ANNUAL REPORT

Table of contents

  • Page 1
    FRONTIER COMMUNICATIONS CORPORATION 2008 ANNUAL REPORT

  • Page 2
    ... (Zip Code) (Address of principal executive offices) 3 High Ridge Park Stamford, Connecticut (203) 614-5600 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock...

  • Page 3
    ..., Executive Officers and Corporate Governance...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence...Principal Accountant Fees and Services...PART...

  • Page 4
    ... to pay an annual dividend of $1.00 per common share. • Growth During 2008, we added approximately 57,100 new High-Speed Internet customers (net) and 116,000 customers began buying a bundle or package of our services. At December 31, 2008, we had approximately 579,900 high-speed data customers and...

  • Page 5
    ... white or yellow pages book, which is typically one calendar year. Television services. We offer a television product in partnership with DISH Network. We provide access to all-digital television channels featuring movies, sports, news, music and high-definition TV programming. We offer packages...

  • Page 6
    ... as of December 31, 2008 and 2007. Access Lines and High-Speed Internet Subscribers at December 31, 2008 2007 State New York ...Pennsylvania ...Minnesota...California ...Arizona ...West Virginia ...Illinois...Tennessee...Wisconsin...Iowa...Nebraska...All other states (13) ...Total ... 825,700 506...

  • Page 7
    ...and Long Distance Services, or CALLS plan, reduced prices for interstate-switched access services and phased out many of the implicit subsidies in interstate access rates. The CALLS program expired in 2005 but continues in effect until the FCC takes further action. The FCC may address future changes...

  • Page 8
    ... offering VOIP products, wireless carriers, long distance providers, competitive local exchange carriers, internet providers and other wireline carriers. We believe that as of December 31, 2008, approximately 65% of the households in our territories had VOIP as an available service option from cable...

  • Page 9
    ... to achieve our customer retention goals by bundling services around the local access line and providing exemplary customer service. Bundled services include High-Speed Internet, unlimited long distance calling, enhanced telephone features and video offerings. We tailor these services to the needs...

  • Page 10
    ... at the offices of the New York Stock Exchange, Inc. (NYSE), 20 Broad Street, New York, NY 10005, on which our common stock is listed. On June 9, 2008, our Chief Executive Officer submitted the annual certification required by Section 303A.12(a) of the NYSE Listed Company Manual. In addition...

  • Page 11
    .... Our business has experienced declining access lines, switched access minutes of use, long distance prices, Federal and state subsidies and related revenues because of economic conditions, increasing competition, changing consumer behavior (such as wireless displacement of wireline use, email use...

  • Page 12
    ... services, High-Speed Internet and video services and make it difficult for us to obtain new customers. In addition, current economic conditions could cause our customers to delay or discontinue payment for our services. Disruption in our networks and infrastructure may cause us to lose customers...

  • Page 13
    ... strikes or other labor actions that could materially disrupt our ability to provide services to our customers. As of December 31, 2008, we had approximately 5,700 active employees. Approximately 2,900, or 51%, of these employees were represented by unions subject to collective bargaining agreements...

  • Page 14
    ...affected. Increasing competition, offering new services, improving the capabilities or reducing the maintenance costs of our plant may cause our capital expenditures to increase in the future. In addition, our ongoing annual dividend of $1.00 per share under our current policy utilizes a significant...

  • Page 15
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES steps. We cannot predict when the FCC will take additional actions or the effect of any such actions on our subsidy revenue. The federal high cost fund is our largest source of subsidy revenue (approximately $20.8 million in 2008). We currently ...

  • Page 16
    ... at 180 South Clinton Avenue, Rochester, New York 14646 and at 100 CTE Drive, Dallas, Pennsylvania 18612. Call center support offices are currently located in leased premises at 14450 Burnhaven Drive, Burnsville, Minnesota 55306 and 1398 South Woodland Blvd., DeLand, Florida 32720. In addition...

  • Page 17
    ..., Human Resources and Call Center Sales & Services Senior Vice President and General Manager, New Business Operations There is no family relationship between directors or executive officers. The term of office of each of the foregoing officers of Frontier will continue until the next annual meeting...

  • Page 18
    ... March 2001. CECILIA K. McKENNEY has been with Frontier since February 2006. She is currently Executive Vice President, Human Resources and Call Center Sales & Service. Previously, she was Senior Vice President, Human Resources from February 2006 to February 2008. Prior to joining Frontier, she was...

  • Page 19
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PRICE RANGE OF COMMON STOCK Our common stock is traded on the New York Stock Exchange under the symbol FTR. The following ...

  • Page 20
    ... stock, the S&P 500 Stock Index and the S&P Telecommunications Services Index and that all dividends were reinvested. Base Period 12/03 INDEXED RETURNS Years Ending 12/05 12/06 12/07 Company/Index 12/04 12/08 Frontier Communications Corporation ...S&P 500 Index ...S&P Telecommunications Services...

  • Page 21
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES ISSUER PURCHASES OF EQUITY SECURITIES Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Period Total Number of Shares...

  • Page 22
    ... of Frontier not included in this Form 10-K. 2008 ($ in thousands, except per share amounts) 2007 Year Ended December 31, 2006 2005 2004 Revenue(1) ...Income from continuing operations...Net income ...Basic income per share of common stock from continuing operations ...Earnings available for...

  • Page 23
    ... new pricing, marketing strategies or new product offerings and the risk that we will not respond on a timely or profitable basis; • The effects of changes in both general and local economic conditions on the markets we serve, which can impact demand for our products and services, customer...

  • Page 24
    ... to achieve our customer retention goals by bundling services around the local access line and providing exemplary customer service. Bundled services include High-Speed Internet, unlimited long distance calling, enhanced telephone features and video offerings. We tailor these services to the needs...

  • Page 25
    ...utilize targeted and innovative promotions to sell new customers, including those moving into our territory, win back previously lost customers, upgrade and up-sell existing customers a variety of service offerings including High-Speed Internet, video, and enhanced long distance and feature packages...

  • Page 26
    ... in cash taxes during 2008, and expect to pay approximately $90.0 million to $110.0 million in 2009. Our 2009 cash tax estimate reflects the anticipated favorable impact of bonus depreciation that is part of the economic stimulus package signed into law by President Obama. Cash Flow used by and...

  • Page 27
    ... a bridge loan facility in connection with the acquisition of Commonwealth and redeem, on April 26, 2007, $495.2 million principal amount of our 7.625% Senior Notes due 2008. In the second quarter of 2007, we completed an exchange offer (to publicly register the debt) for the $750.0 million in total...

  • Page 28
    ... of 2004 as a result of the $2.00 per share of common stock special, non-recurring dividend. The proceeds from the issuance of the Trust Convertible Preferred Securities and a Company capital contribution were used to purchase $207.5 million aggregate liquidation amount of 5% Partnership Convertible...

  • Page 29
    ... five year revolving credit agreement is May 18, 2012. During the term of the credit facility we may borrow, repay and reborrow funds subject to customary conditions. The credit facility is available for general corporate purposes but may not be used to fund dividend payments. Although we believe...

  • Page 30
    ... On July 31, 2006, we sold our CLEC business, Electric Lightwave, LLC (ELI) for $255.3 million (including a later sale of associated real estate) in cash plus the assumption of approximately $4.0 million in capital lease obligations. We recognized a pre-tax gain on the sale of ELI of approximately...

  • Page 31
    ... during 2008 we compared the net book value of the reporting units to current trading multiples of ILEC properties as well as trading values of our publicly traded common stock. Additionally, we utilized a range of prices to gauge sensitivity. Our test determined that fair value exceeded book value...

  • Page 32
    ... form of benefit and mortality. We review these assumptions for changes annually with our independent actuaries. We consider our discount rate and expected long-term rate of return on plan assets to be our most critical assumptions. The discount rate is used to value, on a present basis, our pension...

  • Page 33
    ... Life Insurance Arrangements (EITF No. 06-10) • Accounting for the Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF No. 06-11) • The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162) The following new accounting standards that will be adopted by the Company...

  • Page 34
    ...conditions, changing technology and by some customers disconnecting second lines when they add High-Speed Internet or cable modem service. We lost approximately 174,800 access lines (net), including 22,200 second lines, during 2008, but added approximately 57,100 High-Speed Internet subscribers (net...

  • Page 35
    ... use by wireless, email and other communications services. Excluding the impact of that one-time favorable settlement in 2007, our switched access revenue for 2008 declined by $18.1 million, or 7% from 2007. Access services revenue includes subsidy payments we receive from federal and state agencies...

  • Page 36
    ... 2008, we actively marketed a package of unlimited long distance minutes with our digital phone and state unlimited bundled service offerings. The sale of our digital phone and state unlimited products, and their associated unlimited minutes, has resulted in an increase in long distance customers...

  • Page 37
    ... the Mohave Cellular Limited Partnership. OTHER FINANCIAL AND OPERATING DATA As of December 31, 2008 As of December 31, 2007 As of December 31, 2006 % Change % Change Access lines: Residential...Business ...Total access lines...High-Speed Internet (HSI) subscribers ...Video subscribers... 1,454...

  • Page 38
    ... long distance product and our data backbone. In the fourth quarter of 2008, we expensed $4.2 million of promotional costs for Master Card gift cards issued to new High-Speed Internet customers entering into a two-year price protection plan and to existing customers who purchased additional services...

  • Page 39
    ... related to employee early retirements and terminations for 42 Rochester, New York employees. Additional severance costs of $4.0 million were recorded in the fourth quarter of 2008, including $1.7 million of enhanced early retirement pension benefits related to 55 employees. Severance and early...

  • Page 40
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES enabled us to realize cost savings by leveraging our centralized back office, customer service and administrative support functions over a larger customer base. All other operating expenses for 2007 increased $47.5 million, or 13%, to $404.3 ...

  • Page 41
    ... 2007 and a bridge loan fee of $4.1 million. Interest Expense Interest expense for 2008 decreased $18.1 million, or 5%, to $362.6 million as compared to 2007, primarily due to the amortization of the deferred gain associated with the termination of our interest rate swap agreements and retirement of...

  • Page 42
    ... On July 31, 2006, we sold our CLEC business, Electric Lightwave, LLC (ELI) for $255.3 million (including a later sale of associated real estate) in cash plus the assumption of approximately $4.0 million in capital lease obligations. We recognized a pre-tax gain on the sale of ELI of approximately...

  • Page 43
    ... to market risks for changes in security prices as of December 31, 2008 is limited to our pension assets. We have no other security investments of any material amount. During 2008, the diminished availability of credit and liquidity in the United States and throughout the global financial system has...

  • Page 44
    ...13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon this evaluation, our principal executive officer and principal financial officer concluded, as of the end of the period covered by this report, December 31, 2008, that our disclosure controls and procedures were effective...

  • Page 45
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item is incorporated by reference from our definitive proxy statement for the 2009 Annual Meeting of Stockholders to be filed with the SEC ...

  • Page 46
    ... (filed as Exhibit 99.1 to the Company's current Report on Form 8-K filed on February 6, 2009).* 4.1 - Rights Agreement, dated as of March 6, 2002, between the Company and Mellon Investor Services, LLC, as Rights Agent (filed as Exhibit 1 to the Company's Registration Statement on Form 8-A filed on...

  • Page 47
    ...Company's Current Report on Form 8-K filed on December 7, 2006).* 10.4 - Loan Agreement, dated as of March 8, 2007, among the Company, as borrower, the Lenders listed therein, Citicorp North America, Inc., as Administrative Agent, and Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC...

  • Page 48
    ...to McKenney Offer Letter, dated December 24, 2008. 10.24 - Offer of Employment Letter, dated July 8, 2005, between the Company and Hilary E. Glassman (the "Glassman Offer Letter"). 10.25 - Amendment to Glassman Offer Letter, dated December 29, 2008. 10.26 - Form of Restricted Stock Agreement for CEO...

  • Page 49
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Exhibit No. Description 10.27 - Form of Restricted Stock Agreement for named executive officers other than CEO. 10.28 - Summary of Non-Employee Directors' Compensation Arrangements Outside of Formal Plans. 10.29 - Membership Interest Purchase ...

  • Page 50
    ... authorized. FRONTIER COMMUNICATIONS CORPORATION (Registrant) February 26, 2009 By: /S/ MARY AGNES WILDEROTTER Mary Agnes Wilderotter Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 51
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 52
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements Item Page Management's Report on Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2008 and 2007 ......

  • Page 53
    ...The Board of Directors and Shareholders Frontier Communications Corporation: The management of Frontier Communications Corporation and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15...

  • Page 54
    ...and Other Postretirement Plans" as of December 31, 2006. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Frontier Communications Corporation's internal control over financial reporting as of December 31, 2008, based on criteria...

  • Page 55
    ... because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Frontier Communications Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on...

  • Page 56
    ... one year ...Accounts payable...Advanced billings ...Other taxes accrued...Interest accrued ...Other current liabilities ...Total current liabilities ...Deferred income taxes...Other liabilities ...Long-term debt ...Shareholders' equity: Common stock, $0.25 par value (600,000,000 authorized shares...

  • Page 57
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006 ($ in thousands, except for per-share amounts) 2008 2007 2006 Revenue ...Operating expenses: Network access expenses ...Other operating expenses ......

  • Page 58
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006 ($ and shares in thousands, except for per-share amounts) Common Stock Shares Amount Additional Paid-In Capital Accumulated Other Retained ...

  • Page 59
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006 ($ in thousands) 2008 2007 2006 Net income ...Other comprehensive (loss) income, net of tax and reclassification adjustments* ...Total ...

  • Page 60
    ...provided from (used by) financing activities: Long-term debt borrowings...Debt issuance costs ...Long-term debt payments ...Premium paid to retire debt ...Settlement of interest rate swaps ...Issuance of common stock ...Common stock repurchased ...Dividends paid ...Repayment of customer advances for...

  • Page 61
    ... of Business: Frontier Communications Corporation (formerly known as Citizens Communications Company through July 30, 2008) and its subsidiaries are referred to as "we," "us," "our," or the "Company" in this report. We are a communications company providing services to rural areas and small...

  • Page 62
    ... or to specific firm commitments or forecasted transactions. We also formally assess, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is...

  • Page 63
    ... basis and the tax basis of assets and liabilities using tax rates expected to be in effect when the temporary differences are expected to reverse. (k) Stock Plans: We have various stock-based compensation plans. Awards under these plans are granted to eligible officers, management employees...

  • Page 64
    ... and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements." The guidance is applicable to endorsement split-dollar life insurance arrangements, whereby the employer owns and controls the insurance policies, that are associated with a postretirement benefit. EITF No...

  • Page 65
    ... tax benefits associated with dividends on share-based payment awards be recorded as a component of additional paid-in capital. EITF No. 06-11 was effective, on a prospective basis, for fiscal years beginning after December 15, 2007. The implementation of this standard in the first quarter of 2008...

  • Page 66
    ...a value of $249.8 million. On October 31, 2007, we acquired Global Valley Networks, Inc. and GVN Services (together GVN) through the purchase from Country Road Communications, LLC of 100% of the outstanding common stock of Evans Telephone Holdings, Inc., the parent Company of GVN. The purchase price...

  • Page 67
    ... of purchase price: Current assets(1) ...Property, plant and equipment ...Goodwill ...Other intangibles...Other assets ...Current portion of debt ...Accounts payable and other current liabilities...Deferred income taxes...Convertible notes ...Other liabilities ...Total Purchase Price ...(1) $ 187...

  • Page 68
    ... components of property, plant and equipment at December 31, 2008 and 2007 are as follows: ($ in thousands) Estimated Useful Lives 2008 2007 Land ...Buildings and leasehold improvements ...General support ...Central office/electronic circuit equipment ...Cable and wire ...Other...Construction work...

  • Page 69
    ... for two former executives of the Company. The liability should have been established in 1999 at the time the two employees elected to exchange their death benefit rights for an annuity payout in accordance with the terms of their respective split-dollar life insurance agreements. We established the...

  • Page 70
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements such contract advances that were transferred to the purchaser of our water and wastewater operations on January 15, 2002 and accordingly should have been included in the gain recognized upon sale during ...

  • Page 71
    ... On July 31, 2006, we sold our CLEC business, Electric Lightwave, LLC (ELI), for $255.3 million (including a later sale of associated real estate) in cash plus the assumption of approximately $4.0 million in capital lease obligations. We recognized a pre-tax gain on the sale of ELI of approximately...

  • Page 72
    ... telephone directories in the Commonwealth service territory; (2) a 16.8% interest in the Fairmount Cellular Limited Partnership which is engaged in cellular mobile telephone service in the Rural Service Area (RSA) designated by the FCC as Georgia RSA No. 3; and (3) our investments in CU Capital...

  • Page 73
    ... due 7/23/2023 ...Fair value of interest rate swaps ...Total ... During 2008, we retired an aggregate principal amount of $144.7 million of debt, consisting of $128.7 million of 9.25% Senior Notes due 2011, $12.0 million of other senior unsecured debt and rural utilities service loan contracts, and...

  • Page 74
    ...The credit facility is available for general corporate purposes but may not be used to fund dividend payments. On January 15, 2008, we terminated all of our interest rate swap agreements representing $400.0 million notional amount of indebtedness associated with our Senior Notes due in 2011 and 2013...

  • Page 75
    ... then current rate of interest, of the remaining obligations to exchange payments under the terms of the contracts. On January 15, 2008, we terminated all of our interest rate swap agreements representing $400.0 million notional amount of indebtedness associated with our Senior Notes due in 2011 and...

  • Page 76
    ... are as follows: ($ in thousands) 2008 2007 2006 Bridge loan fee...Premium on debt repurchases ...Legal fees and settlement costs...Gain on expiration/settlement of customer advances, net ...Loss on exchange of debt...Gain on forward rate agreements ...Other, net ...Total other income (loss), net...

  • Page 77
    ... of 2004 as a result of the $2.00 per share of common stock special, non-recurring dividend. The proceeds from the issuance of the Trust Convertible Preferred Securities and a Company capital contribution were used to purchase $207.5 million aggregate liquidation amount of 5% Partnership Convertible...

  • Page 78
    ... the average exercise price of outstanding options. On March 17, 2008, the Company adopted the Long-Term Incentive Program (LTIP). The LTIP covers the named executive officers and certain other officers. The LTIP is designed to incent and reward the Company's senior executives if they achieve...

  • Page 79
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements senior executives, as well as the target level for each performance metric, for the 2008-2010 Measurement Period. Minimum financial performance "gates" were set that had to be achieved with respect to ...

  • Page 80
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements expected life (estimated period of time outstanding) of stock options granted was estimated using the historical exercise behavior of employees. The risk free interest rate is based on the U.S. Treasury ...

  • Page 81
    ... 2008, each non-employee director received fees of $2,000 for each in-person Board of Directors and committee meeting attended and $1,000 for each telephone Board and committee meeting attended. The chairs of the Audit, Compensation, Nominating and Corporate Governance and Retirement Plan Committees...

  • Page 82
    ...Property, plant and equipment basis differences ...Intangibles ...Other, net ...Deferred income tax assets: SFAS No. 158 pension/OPEB liability ...Tax operating loss carryforward...Alternative minimum tax credit carryforward ...Employee benefits ...State tax liability...Accrued expenses ...Bad debts...

  • Page 83
    ... ...Total income taxes charged to the consolidated statement of operations (a)...Income taxes charged (credited) to shareholders' equity: Deferred income tax benefits on unrealized/realized gains or losses on securities classified as available-for-sale ...Current benefit arising from stock options...

  • Page 84
    .... We also maintain uncertain tax positions in various state jurisdictions. Amounts related to uncertain tax positions that may change within the next twelve months are not material. The following table sets forth the changes in the Company's balance of unrecognized tax benefits for the years ended...

  • Page 85
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Stock Options For the years ended December 31, 2008, 2007 and 2006, options to purchase shares of 2,647,000 (at exercise prices ranging from $11.15 to $18.46), 1,804,000 (at exercise prices ranging from $...

  • Page 86
    ... operate in one reportable segment, Frontier. Frontier provides both regulated and unregulated voice, data and video services to residential, business and wholesale customers and is typically the incumbent provider in its service areas. As permitted by SFAS No. 131, we have utilized the aggregation...

  • Page 87
    ...significant number of our former and current employees and other postretirement benefit plans that provide medical, dental, life insurance and other benefits for covered retired employees and their beneficiaries and covered dependents. The benefits are based on years of service and final average pay...

  • Page 88
    .... We review our asset allocation at least annually and make changes when considered appropriate. Our asset return assumption is made at the beginning of our fiscal year. In 2008, we did not change our expected longterm rate of return from the 8.25% used in 2007. Our pension plan assets are valued at...

  • Page 89
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Pension Benefits The following tables set forth the plan's projected benefit obligations and fair values of plan assets as of December 31, 2008 and 2007 and net periodic benefit cost for the years ended ...

  • Page 90
    ...: 2008 2007 Asset category: Equity securities ...Debt securities ...Alternative investments ...Cash and other...Total...The plan's expected benefit payments over the next 10 years are as follows: ($ in thousands) Year Amount 42% 48% 9% 1% 100% 51% 38% 9% 2% 100% 2009 ...2010 ...2011 ...2012...

  • Page 91
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Postretirement Benefits Other Than Pensions-"OPEB" The following table sets forth the plans' benefit obligations, fair values of plan assets and the postretirement benefit liability recognized on our ...

  • Page 92
    ...: 2008 2007 Asset category: Equity securities ...Debt securities ...Cash and other...Total...The plans' expected benefit payments over the next 10 years are as follows: ($ in thousands) Year Gross Benefits Medicare Part D Subsidy Total 0% 100% 0% 100% 0% 100% 0% 100% 2009 ...2010 ...2011 ...2012...

  • Page 93
    ... the Frontier telephone companies. The complaint against Citibank, for which it seeks indemnification, alleges that the seller improperly used a portion of the proceeds from the Frontier transaction to pay off the Citibank credit agreement, thereby defrauding certain debt holders of Global Crossing...

  • Page 94
    ... us subject to minimum monthly fees. At December 31, 2008, the estimated future payments for obligations under our noncancelable long distance contracts and service agreements are as follows: ($ in thousands) Year Amount 2009 ...2010 ...2011 ...2012 ...2013 ...Thereafter ...Total $23,286 9,937 259...

  • Page 95
    ... follows: ($ in thousands) CNA ...State of New York ...Total... $20,844 1,042 $21,886 CNA serves as our agent with respect to general liability claims (auto, workers compensation and other insured perils of the Company). As our agent, they administer all claims and make payments for claims on our...

  • Page 96
    .... STOCK TRANSFER AGENT Illinois Stock Transfer Company 209 West Jackson Boulevard, Suite 903 Chicago, IL 60606-6905 Tel: 800-757-5755 or 312-427-2953 Fax: 312-427-2879 AUDITORS KPMG LLP 3001 Summer Street Stamford, CT 06905 EXCHANGE LISTING The common stock is listed on the New York Stock Exchange...

  • Page 97
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 98
    ... OUR VALUES Put the customer first Treat one another with respect Keep our commitments; Be accountable Be ethical in all of our dealings Take the initiative Be team players Be innovative; Practice continuous improvement Be active in our communities Do it right the first time Use resources wisely...

  • Page 99
    Frontier Communications Corporation Three High Ridge Park Stamford, CT 06905-1390 203-614-5600