Frontier Communications 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 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 107

  • 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
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107

FRONTIER COMMUNICATIONS CORPORATION
2009 ANNUAL REPORT

Table of contents

  • Page 1
    FRONTIER COMMUNICATIONS CORPORATION 2009 ANNUAL REPORT

  • Page 2

  • Page 3
    ... 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, par value $.25 per share New York...

  • Page 4
    ..., 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 5
    ... largest incumbent local exchange carrier, with more than 6.3 million access lines, 8 million voice and broadband connections and 15,000 employees in 27 states on a pro forma basis as of December 31, 2009. The combined company will offer voice, data and video services to customers in its expanded...

  • Page 6
    ... call forwarding, conference calling, caller identification, voicemail and call waiting. We also offer packages of communications services. These packages permit customers to bundle their basic telephone line service with their choice of enhanced, long distance, television and internet services...

  • Page 7
    ... long distance services are billed either as unlimited/fixed number of minutes in advance or on a per minute-of-use basis. Data and internet services. We offer data services including internet access (via high-speed or dial up internet access), portal and e-mail products frame relay, Metro Ethernet...

  • Page 8
    ... COMMUNICATIONS CORPORATION AND SUBSIDIARIES The following table sets forth the aggregate number of our access lines and HSI subscribers by state as of December 31, 2009 and 2008. Access Lines and High-Speed Internet Subscribers at December 31, 2009 2008 State New York ...Pennsylvania ...Minnesota...

  • Page 9
    ... access rates of price cap providers through May 2005. The program, known as the Coalition for Affordable Local 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...

  • Page 10
    ... communications service providers. These providers include cable operators offering video, data and VOIP products, wireless carriers, long distance providers, competitive local exchange carriers, Internet providers and other wireline carriers. We believe that as of December 31, 2009, approximately...

  • Page 11
    ... our customer retention goals by offering attractive packages of value-added services to our access line customers and providing exemplary customer service. Bundled services include HSI, unlimited long distance calling, enhanced telephone features and video offerings. We tailor these services to...

  • Page 12
    ... and Oregon (collectively, the Spinco territory), including Internet access and long distance services and broadband video provided to designated customers in the Spinco territory (collectively, the Spinco business). Immediately prior to the merger, Spinco will be spun off to Verizon stockholders...

  • Page 13
    ...inspected 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. We make available, free of charge on our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments...

  • Page 14
    ...the operations of the Spinco business immediately after the merger. However, the size and complexity of the Spinco business and the process of using Frontier's existing common support functions and systems to manage the Spinco business after the merger, if not managed successfully by management, may...

  • Page 15
    ... Internet access and long distance services and broadband video provided to designated customers in the Spinco territory. The merger agreement provides that all the contributions will be made so that the Spinco business (other than the portion conducted in West Virginia) is segregated from Verizon...

  • Page 16
    ... Code), including as a result of subsequent acquisitions of stock of Verizon or Frontier, then Verizon or Verizon stockholders may be required to pay substantial U.S. federal income taxes, and Frontier may be obligated to indemnify Verizon for such taxes imposed on Verizon. The spin-off and merger...

  • Page 17
    ... IRS private letter ruling (or an opinion of counsel that is reasonably acceptable to Verizon) to the effect that the action will not affect the tax-free status of the spin-off or the merger. However, the receipt by Frontier of any such consent, opinion or ruling does not relieve Frontier...

  • Page 18
    ...adversely affect it. The businesses that will make up the Company have experienced declining access lines, switched access minutes of use, long distance revenues, federal and state subsidies and related revenues because of economic conditions, increasing competition, changing consumer behavior (such...

  • Page 19
    ... at a lower cost than the Company. Consequently, some of these competitors may be able to develop and expand their communications and network infrastructures more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other...

  • Page 20
    ...2010. Frontier cannot predict the outcome of negotiations for the collective bargaining agreements of the Company. If the Company is unable to reach new agreements or renew existing agreements, employees subject to collective bargaining agreements may engage in strikes, work slowdowns or other labor...

  • Page 21
    ... to the Verizon Transaction-"Frontier will be unable to take certain actions after the merger because such actions could jeopardize the tax-free status of the spin-off or the merger, and such restrictions could be significant." The number of shares of the Company's common stock or the aggregate...

  • Page 22
    ... the employee matters agreement entered into among Verizon, Spinco and Frontier. The aggregate transfer related to the tax-qualified pension plans for active union employees will be sufficient for full funding of projected benefit obligations in the aggregate. Following the merger, the Company will...

  • Page 23
    ... in 2009) are derived from federal and state subsidies for rural and high cost support, commonly referred to as universal service fund subsidies, including the Federal High Cost Loop Fund, federal interstate access support, federal interstate common line support, federal local switching support fund...

  • Page 24
    ... business's cost structure, there will be a decrease in the subsidy revenues Frontier and the Spinco business will earn in 2010 through the Federal High Cost Loop Fund. The amount of federal interstate access support funds received may also decline as that fund is also subject to a national cap...

  • Page 25
    ... COMMUNICATIONS CORPORATION AND SUBSIDIARIES Item 2. Properties Our principal corporate offices are located in leased premises at 3 High Ridge Park, Stamford, Connecticut 06905. Operations support offices are currently located in leased premises at 180 South Clinton Avenue, Rochester, New York...

  • Page 26
    ... Executive Vice President, Human Resources and Call Center Sales & Services Executive Vice President and General Manager, Marketing and 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...

  • Page 27
    ... President, Headquarters Human Resources from 2000 to 2004. MELINDA WHITE has been with Frontier since January 2005. She is currently Executive Vice President and General Manager, Marketing and New Business Operations. Previously, she was Senior Vice President and General Manager, Marketing and New...

  • Page 28
    ... Securities PRICE RANGE OF COMMON STOCK Our common stock is traded on the New York Stock Exchange under the symbol FTR. The following table indicates the high and low intra-day sales prices, as reported by the New York Stock Exchange, per share during the periods indicated. 2009 High Low High 2008...

  • Page 29
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES STOCKHOLDER RETURN PERFORMANCE GRAPH The following performance graph compares the cumulative total return of our common stock to the S&P 500 Stock Index and to the S&P Telecommunications Services...of 1933 or the Securities Exchange Act of 1934, each...

  • Page 30
    ... under employee stock compensation plans) to offset minimum tax withholding obligations that occur upon the vesting of restricted shares. The Company's stock compensation plans provide that the value of shares withheld shall be the average of the high and low price of the Company's common stock on...

  • Page 31
    ... Global Valley Networks, Inc. and GVN Services (together GVN) from the date of their acquisition on October 31, 2007. Operating results exclude activities for Electric Lightwave, LLC (ELI) for 2006 and 2005. In 2006, we sold our CLEC business, ELI for $255.3 million (including the sale of associated...

  • Page 32
    ... requiring new pricing, marketing strategies or new product or service offerings and the risk that we or, if the Verizon Transaction is completed, the combined company will not respond on a timely or profitable basis; • Reductions in the number of our access lines or, if the Verizon Transaction...

  • Page 33
    ... this report. We have no obligation to update or revise these forward-looking statements. Overview We are a full-service communications provider and one of the largest exchange telephone carriers in the country. As of December 31, 2009, we operated in 24 states with approximately 5,400 employees. 31

  • Page 34
    ... our customer retention goals by offering attractive packages of value-added services to our access line customers and providing exemplary customer service. Bundled services include HSI, unlimited long distance calling, enhanced telephone features and video offerings. We tailor these services to...

  • Page 35
    ... Frontier Peace of Mind products generated approximately $3.2 million in revenue. Most recently, we introduced our myfitv.com website which provides easy online access to video content, entertainment and news available on the worldwide web. Our hard drive back-up services, 24-7 help desk PC support...

  • Page 36
    ... of 2010, and enable the combined company to implement its "go to market" strategy at closing. As a result, the Company incurred $28.3 million of acquisition and integration costs and $25.0 million in capital expenditures related to Verizon integration activities in 2009. While the Company continues...

  • Page 37
    ... on March 8, 2007 under a bridge loan facility in connection with the acquisition of Commonwealth, and to 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...

  • Page 38
    ... in common stock. We also paid down $44.6 million of industrial development revenue bonds and $4.3 million of rural utilities service loan contracts. We may from time to time repurchase our debt in the open market, through tender offers, exchanges of debt securities, by exercising rights to call or...

  • Page 39
    ... and restrictions on asset sales and transfers, mergers and other changes in corporate control. We currently have no restrictions on the payment of dividends either by contract, rule or regulation, other than those imposed by the General Corporation Law of the State of Delaware. However, we would be...

  • Page 40
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Our $200.0 million term loan facility with the Rural Telephone Finance Cooperative (RTFC), which matures in 2011, our $250.0 million credit facility, and our $150.0 million and $135.0 million senior unsecured term loans, each contain a maximum ...

  • Page 41
    ... postretirement benefits, income taxes, contingencies and purchase price allocations, among others. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and our Audit Committee has reviewed our disclosures...

  • Page 42
    ... name, which resulted from the purchase of ILEC properties. We test for impairment of these assets annually, or more frequently, as circumstances warrant. We reorganized our management and operating structure during the first quarter of 2009 to include our Rochester market with our existing New York...

  • Page 43
    ... the following: discount rates, expected long-term rate of return on plan assets, future compensation increases, employee turnover, healthcare cost trend rates, expected retirement age, optional form of benefit and mortality. We review these assumptions for changes annually with our independent...

  • Page 44
    ... provision of local, network access, long distance, and data and internet services. Such revenues are generated through either a monthly recurring fee or a fee based on usage at a tariffed rate and revenue recognition is not dependent upon significant judgments by management, with the exception of...

  • Page 45
    ... economic conditions, changing technology, competition, and by some customers disconnecting second lines when they add HSI or cable modem service. In 2009, we lost approximately 136,800 access lines (net), or 6% on an annual basis. This represents an improvement in our rate of access line loss over...

  • Page 46
    ...Customer: Primary Residential Voice line, HSI, Video products have a value of 1. FTR long distance, POM, second lines, Feature Packages and Dial-up have a value of 0.5. REVENUE 2009...Local services ...Data and internet services ...Access services ...Long distance services ...Directory services ......

  • Page 47
    ... of use by wireless, email and other communications services. Access services revenue includes subsidy payments we receive from federal and state agencies, including surcharges billed to customers that are remitted to the FCC. Subsidy revenue, including surcharges billed to customers, for 2009 of...

  • Page 48
    ...with our digital phone and state unlimited bundled service offerings. These offerings have resulted in an increase in long distance customers, and an increase in the minutes used by these customers. This has lowered our overall average rate per minute billed. While these package offerings have grown...

  • Page 49
    ...bundled services. As we continue to offer "aspirational gifts" as part of our promotions, increase our sales of data products such as HSI and increase the penetration of our unlimited long distance calling plans, our network access expense may increase in the future. A decline in expenses associated...

  • Page 50
    ...and GVN acquisitions decreased $4.2 million and legacy Frontier operations decreased $8.0 million primarily due to headcount reductions and associated decreases in compensation and benefit costs attributable to the integration of the back office, customer service and administrative support functions...

  • Page 51
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES 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 ...

  • Page 52
    ... integrate the network and information technology platforms. While the Company continues to evaluate certain other expenses, we currently expect to incur acquisition and integration costs of approximately $100.0 million in 2010. We anticipate closing the Verizon Transaction during the second quarter...

  • Page 53
    ...in 2010. Refunds of approximately $56.2 million have been applied for in the Company's 2008 tax returns. The refunds result from a tax methods change applied for during the third quarter of 2009. Refunds are recorded on our balance sheet at December 31, 2009 in current assets within income taxes. We...

  • Page 54
    ... 2009, an increase of $18.8 million, or 3%. This increase is a result of positive investment returns of $90.2 million, or 15%, partially offset by ongoing benefit payments of $71.4 million, or 12%, during 2009. We expect that we will make a $10.0 million cash contribution to our pension plan in 2010...

  • Page 55
    ... (as defined in Rules 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, 2009, that our disclosure controls...

  • Page 56
    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 2010 Annual Meeting of Stockholders to be filed with the SEC ...

  • Page 57
    ...No. Description 2.1 - Agreement and Plan of Merger, dated as of May 13, 2009, by and among Verizon Communications Inc. ("Verizon"), New Communications Holdings Inc. ("Spinco") and the Company ("Agreement and Plan of Merger") (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on...

  • Page 58
    ... Indenture dated as of March 23, 2007 by and between the Company and The Bank of New York with respect to the 6.625% Senior Notes due 2015 (including the form of such note attached thereto) (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on March 27, 2007 (the "March 27, 2007...

  • Page 59
    ... Agreement, dated as of May 13, 2009, by and among Verizon, Spinco and the Company (filed as Exhibit 10.3 to the May 15, 2009 8-K).* 10.12 - Non-Employee Directors' Deferred Fee Equity Plan, as amended and restated December 29, 2008 (filed as Exhibit 10.7 to the Company's Annual Report on Form...

  • Page 60
    ... Amendment to Glassman Offer Letter, dated December 29, 2008 (filed as Exhibit 10.25 to the 2008 10-K).* 10.32 - Form of Restricted Stock Agreement for CEO. 10.33 - Form of Restricted Stock Agreement for named executive officers other than CEO. 10.34 - Summary of Non-Employee Directors' Compensation...

  • Page 61
    ... 9, 2006).* 10.36 - Stock Purchase Agreement, dated as of July 3, 2007, between the Company and Country Road Communications LLC (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 9, 2007).* 12.1 - Computation of ratio of earnings to fixed charges (this item is included...

  • Page 62
    ... authorized. FRONTIER COMMUNICATIONS CORPORATION (Registrant) February 26, 2010 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 63
    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, 2009 and 2008 ......

  • Page 64
    ... 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...

  • Page 65
    ...December 31, 2009, in conformity with U.S. generally accepted accounting principles. 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...

  • Page 66
    ... have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Frontier Communications Corporation and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, equity...

  • Page 67
    ... 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 ...Equity: Shareholders' equity of Frontier: Common stock, $0.25 par value (600,000...

  • Page 68
    ... STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 and 2007 ($ in thousands, except for per-share amounts) 2009 2008 2007 Revenue ...Operating expenses: Network access expenses ...Other operating expenses ...Depreciation and amortization ...Acquisition and integration costs...

  • Page 69
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 and 2007 ($ and shares in thousands, except for per-share amounts) Frontier Shareholders Accumulated Additional Other Paid-In Retained Comprehensive Capital Earnings ...

  • Page 70
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 and 2007 ($ in thousands) 2009 2008 2007 Net income ...Other comprehensive income (loss), net of tax and reclassification adjustments (see Note 16) ......

  • Page 71
    ...-term debt borrowings ...Financing costs paid ...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 construction and distributions to noncontrolling...

  • Page 72
    ... or when products are delivered to customers. Revenue that is billed in advance includes: monthly recurring network access services, special access services and monthly recurring local line and unlimited fixed long-distance bundle charges. The unearned portion of these fees are initially deferred as...

  • Page 73
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Fund (USF) surcharges from customers (primarily federal USF) which we have recorded on a gross basis in our consolidated statements of operations and included in revenue and other operating expenses at $...

  • Page 74
    ...or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will account for our pending acquisition of approximately 4.2 million access lines (as of December 31, 2009) from Verizon Communications Inc. (Verizon) using the guidance included in SFAS No. 141R...

  • Page 75
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (ASC Topic 805), such costs are required to be expensed as incurred and are reflected in "Acquisition and integration costs" in our consolidated statements of operations. Noncontrolling Interests in ...

  • Page 76
    ... of Verizon, including Internet access and long distance services and broadband video provided to designated customers. Assuming that the merger occurred on December 31, 2009, the merger would have resulted in Frontier acquiring approximately 4.2 million access lines and certain business related...

  • Page 77
    ... COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following schedule provides a summary of the final purchase price paid by Frontier in the acquisitions of Commonwealth and GVN: ($ in thousands) Commonwealth GVN Cash paid ...Value of Frontier common stock...

  • Page 78
    ... 2008 are as follows: ($ in thousands) Estimated Useful Lives 2009 2008 Land ...Buildings and leasehold improvements ...General support ...Central office/electronic circuit equipment ...Cable and wire ...Other...Construction work in progress ...Less: Accumulated depreciation...Property, plant and...

  • Page 79
    ... million to the customer base (five year life) and $0.3 million to the trade name (five year life) acquired in the Global Valley acquisition. Amortization expense, based on our estimate of useful lives, is estimated to be $56.2 million in 2010 and 2011 and $11.3 million in 2012. (7) Long-Term Debt...

  • Page 80
    ... in more detail below, and $1.0 million of rural utilities service loan contracts. On October 1, 2009, we completed a registered debt offering of $600.0 million aggregate principal amount of 8.125% senior unsecured notes due 2018. The issue price was 98.441% of the principal amount of the notes...

  • Page 81
    ... statements of operations for the year ended December 31, 2009. As a result of these 2009 debt financing, tender activities and other debt repurchases described above, as of December 31, 2009, we reduced our 2011 debt maturity to $280.0 million. As of December 31, 2009, we had an available line...

  • Page 82
    ... 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 83
    ... 2007, we incurred $4.1 million of fees associated with a bridge loan facility. In 2007, we retired certain debt and recognized a loss of $18.2 million on the early extinguishment of debt at a premium, mainly for the 7.625% Senior Notes due 2008. During 2009, 2008 and 2007, we recognized income...

  • Page 84
    ... associated with the Director Plans was $0.6 million in 2009 and $0.5 million in each of 2008 and 2007. These costs are recognized in Other operating expenses. We have granted restricted stock awards to key employees in the form of our common stock. The number of shares issued as restricted stock...

  • Page 85
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements EIPs generally are equal to or greater than the fair market value of the underlying common stock on the date of grant. Stock options are not ordinarily exercisable on the date of grant but vest over a ...

  • Page 86
    ... cost associated with unvested restricted stock awards at December 31, 2009 was $15.2 million and the weighted average period over which this cost is expected to be recognized is approximately two years. Non-Employee Directors' Compensation Plans Upon commencement of his or her service on the Board...

  • Page 87
    ...$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 were paid an additional annual fee of $25,000, $20...

  • Page 88
    ...) 2009 2008 Deferred income tax liabilities: Property, plant and equipment basis differences ...Intangibles ...Other, net ...Deferred income tax assets: Additional pension/OPEB liability...Tax operating loss carryforward...Employee benefits ...State tax liability...Accrued expenses ...Bad debts...

  • Page 89
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The provision (benefit) for Federal and state income taxes, as well as the taxes charged or credited to shareholders' equity of Frontier, includes amounts both payable currently and deferred for payment ...

  • Page 90
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table sets forth the changes in the Company's balance of unrecognized tax benefits for the years ended December 31, 2009 and 2008 in accordance with ASC Topic 740: ($ in thousands) 2009 2008...

  • Page 91
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements effect would be antidilutive. In calculating diluted EPS we apply the treasury stock method and include future unearned compensation as part of the assumed proceeds. In addition, for the years ended ...

  • Page 92
    ... segments because all of our Frontier properties share similar economic characteristics, in that they provide the same products and services to similar customers using comparable technologies in all of the states in which we operate. The regulatory structure is generally similar. Differences in the...

  • Page 93
    ... the following: discount rates, expected long-term rate of return on plan assets, future compensation increases, employee turnover, healthcare cost trend rates, expected retirement age, optional form of benefit and mortality. We review these assumptions for changes annually with our independent...

  • Page 94
    ... 31, 2009, 2008 and 2007, respectively, as the costs that relate to our engineering and plant construction activities. Effective December 30, 2007, the CTE Employees' Pension Plan was frozen for all non-union Commonwealth employees. No additional benefit accruals for service rendered subsequent...

  • Page 95
    ... and valuation of the year-end obligations were as follows: 2009 2008 2007 Discount rate-used at year end to value obligation...Discount rate-used to compute annual cost ...Expected long-term rate of return on plan assets ...Rate of increase in compensation levels ... 5.75% 6.50% 8.00% 3.00% 6.50...

  • Page 96
    ...$ 8,560 Assumptions used in the computation of annual OPEB costs and valuation of the year-end OPEB obligations were as follows: 2009 2008 2007 Discount rate-used at year end to value obligation ...Discount rate-used to compute annual cost...Expected long-term rate of return on plan assets ...F-34...

  • Page 97
    ...Our expected contribution to the plan in 2010 is $12.8 million. For purposes of measuring year-end benefit obligations, we used, depending on medical plan coverage for different retiree groups, a 8.5% annual rate of increase in the per-capita cost of covered medical benefits, gradually decreasing to...

  • Page 98
    ...,810 $376,086 13,509 $21,554 5,753 $ 8,045 401(k) Savings Plans We sponsor employee retirement savings plans under section 401(k) of the Internal Revenue Code. The plans cover substantially all full-time employees. Under the plans, we provide matching contributions and also provide certain profit...

  • Page 99
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table represents the Company's pension plan assets measured at fair value on a recurring basis: Fair Value Measurements at December 31, 2009 Quoted Prices in Active Markets for Identical ...

  • Page 100
    .... Future minimum rental commitments for all long-term noncancelable operating leases as of December 31, 2009 are as follows: ($ in thousands) Operating Leases Year ending December 31: 2010 ...2011 ...2012 ...2013 ...2014 ...Thereafter ...Total minimum lease payments ... $24,417 11,627 8,407 7,107...

  • Page 101
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements At December 31, 2009, the estimated future payments for obligations under our noncancelable long distance contracts and service agreements are as follows: ($ in thousands) Year Amount 2010...2011...2012...

  • Page 102
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 103
    CORPORATE HEADQUARTERS Three High Ridge Park Stamford, CT 06905-1390 Tel: 203-614-5600 STOCKHOLDER INQUIRIES Investor material is available on Frontier's website at www.frontier.com. Copies of the company's 2009 Form 10-K report filed with the U.S. Securities and Exchange Commission and other ...

  • Page 104
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 105
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 106
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 107
    Frontier Communications Corporation Three High Ridge Park Stamford, CT 06905-1390 203-614-5600