Frontier Communications 2008 Annual Report Download - page 12

A significant portion of our revenues ($285.0 million, or 13% in 2008) is derived from access charges paid
by IXCs for services we provide in originating and terminating intrastate and interstate traffic. The amount of
access charge revenues we receive for these services is regulated by the FCC and state regulatory agencies.
We may be unable to grow our revenue and cash flow despite the initiatives we have implemented.
We must produce adequate cash flow that, when combined with funds available under our revolving credit
facility, will be sufficient to service our debt, fund our capital expenditures, pay our taxes and maintain our
current dividend policy. We expect that our cash taxes, which increased significantly in 2008, will continue to
increase in 2009 due to our expectations of continued profitability and the effects of fully utilizing our federal
net operating loss carryforwards and Alternative Minimum Tax (AMT) tax credit carryforwards that were
generated in prior years. We have implemented several growth initiatives, including increasing our marketing
promotion/expenditures and launching new products and services with a focus on areas that are growing or
demonstrate meaningful demand such as wireline and wireless High-Speed Internet, the DISH satellite
television product and our Peace of Mind computer technical support. We cannot assure you that these
initiatives will improve our financial position or our results of operations.
We may complete a significant strategic transaction that may not achieve intended results and/or
increase our outstanding shares and/or debt or result in a change of control.
We continuously evaluate and may in the future enter into strategic transactions. Any such transaction
could happen at any time, could be material to our business and could take any number of forms, including, for
example, an acquisition, merger or a sale of all or substantially all of our assets.
Evaluating potential transactions and integrating completed ones may divert management’s attention from
ordinary operating matters. The success of these and other potential transactions will depend, in part, on our
ability to realize the anticipated synergies, cost savings and growth opportunities through the successful
integration of the businesses we acquire with our existing business. Even if we are successful integrating
acquired businesses, we cannot assure you that these integrations will result in the realization of the full benefit
of the anticipated synergies, cost savings or growth opportunities or that these benefits will be realized within
the expected time frames. In addition, acquired businesses may have unanticipated liabilities or contingencies.
If we complete an acquisition, investment or other strategic transaction we may require additional
financing that could result in an increase in the number of our outstanding shares and/or the aggregate amount
of our debt. The number of shares of our common stock and/or the aggregate principal amount of our debt that
we may issue may be significant. A strategic transaction may result in a change in control of our company or
otherwise materially and adversely impact our business.
Weak economic conditions may decrease demand for our services.
We could be sensitive to the ongoing recession. Downturns in the economy and competition in our
markets could cause some of our existing customers to reduce or eliminate their purchases of our basic and
enhanced 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 and incur additional
expenses.
To attract and retain customers, we will need to continue to provide them with reliable service over our
networks. Some of the risks to our networks and infrastructure include physical damage to access lines, security
breaches, capacity limitations, power surges or outages, software defects and disruptions beyond our control,
such as natural disasters and acts of terrorism. From time to time in the ordinary course of business, we
experience short disruptions in our service due to factors such as cable damage, inclement weather and service
failures of our third party service providers. We could experience more significant disruptions in the future. We
could also face disruptions due to capacity limitations if changes in our customers’ usage patterns for our High-
Speed Internet services result in a significant increase in capacity utilization, such as through increased usage of
video or peer-to-peer file sharing applications. Disruptions may cause interruptions in service or reduced
capacity for customers, either of which could cause us to lose customers and incur additional expenses, and
thereby adversely affect our business, revenue and cash flows.
11
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES