Frontier Communications 2008 Annual Report Download - page 39

office, customer service and administrative support functions of the CTE and GVN operations acquired in
2007.
Wage and benefit expenses for 2007 increased $22.5 million, or 6%, to $381.3 million as compared to
2006. Excluding the additional wage and benefit expenses attributable to the CTE and GVN acquisitions of
$28.9 million in 2007, wage and benefit expenses for 2007 decreased $6.4 million, or 2%, as compared to
2006, primarily due to headcount reductions and associated decreases in compensation and benefit costs.
Included in our wage and benefit expenses are pension and other postretirement benefit expenses. The
amounts for 2007 include the costs for our CTE plans acquired in 2007 and reflect the positive impact of a
pension curtailment gain of $14.4 million, resulting from the freeze placed on certain pension benefits of the
former CTE non-union employees. Based on current assumptions and plan asset values, we estimate that our
pension and other postretirement benefit expenses (which were $11.2 million in 2008), will be approximately
$50.0 million to $55.0 million in 2009. No contribution was made to our pension plan during 2008 and none is
expected to be made in 2009. Also, effective December 31, 2007, the CTE Employees’ Pension Plan was
merged into the Frontier Pension Plan.
As a result of negative investment returns and ongoing benefit payments, the Company’s pension plan
assets have declined from $822.2 million at December 31, 2007 to $589.8 million at December 31, 2008, a
decrease of $232.4 million, or 28%. This decrease represents a decline in asset value of $162.9 million, or 20%,
and benefits paid of $69.5 million, or 8%. The decline in pension plan assets did not impact our results of
operations, liquidity or cash flows in 2008. However, we expect that our pension expense will increase in 2009
and that we will be required to make a cash contribution to our pension plan beginning in 2010.
Severance and early retirement costs
Severance and early retirement costs for 2008 decreased $6.3 million, or 45%, as compared to 2007.
Severance and early retirement costs of $7.6 million in 2008 include charges recorded in the first half of 2008
of $3.4 million 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 retirement costs of $13.9 million in 2007 include a third quarter charge of
approximately $12.1 million related to initiatives to enhance customer service, streamline operations and reduce
costs. Approximately 120 positions were eliminated as part of this 2007 initiative, most of which were filled by
new employees at our remaining call centers. In addition, approximately 50 field operations employees agreed
to participate in an early retirement program and another 30 employees from a variety of functions left the
Company in 2007.
Severance and early retirement costs for 2007 increased $6.7 million, or 93%, as compared to 2006,
primarily due to the 2007 charge of approximately $12.1 million related to initiatives to enhance customer
service, streamline operations and reduce costs, as discussed above.
Stock based compensation
Stock based compensation for 2008 decreased $1.2 million, or 14%, as compared to 2007 due to reduced
costs associated with stock units and stock options.
Stock based compensation for 2007 decreased $1.3 million, or 13%, as compared to 2006 due to reduced
costs associated with stock options, since fewer stock option grants remained unvested as compared to 2006.
All other operating expenses
All other operating expenses for 2008 increased $7.2 million, or 2%, to $411.5 million as compared to
2007, primarily due to the additional expenses attributable to the CTE and GVN acquisitions of $10.0 million
in 2008 versus 2007, as 2008 includes a full year of expenses for CTE and GVN while 2007 included
approximately ten months of costs for CTE and two months of costs for GVN. Our purchase of CTE has
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES