Frontier Communications 2009 Annual Report Download - page 5

PART I
Item 1. Business
Frontier Communications Corporation (Frontier) (formerly known as Citizens Communications Company
through July 30, 2008) and its subsidiaries are referred to as the “Company,” “we,” “us” or “our” throughout
this report and references to the “combined company” refer to the Company following the completion of the
Verizon Transaction (as defined below). Frontier was incorporated in the State of Delaware in 1935 as Citizens
Utilities Company.
Our mission is to be the leader in providing communications services to residential and business customers
in our markets. We are committed to delivering innovative and reliable products and solutions with an
emphasis on convenience, service and customer satisfaction. We offer a variety of voice, data, internet, and
television services that are available as bundled or packaged solutions and for some products, a
´la carte. We
believe that our local management structure, superior customer service and innovative product positioning will
continue to differentiate us from our competitors in the markets in which we compete.
We are a communications company providing services to rural areas and small and medium-sized towns
and cities. Revenue was $2.1 billion in 2009. Among the highlights for 2009:
•Verizon Transaction
As previously announced, on May 13, 2009, we entered into an Agreement and Plan of Merger (the
merger agreement), which provides for a merger (the merger) in which New Communications Holdings,
Inc. (Spinco), a newly formed subsidiary of Verizon Communications, Inc. (Verizon) will be merged
into Frontier (the Verizon Transaction). We expect the merger to close during the second quarter of
2010.
The combined company is expected to be the nation’s largest communications services provider focused
on rural areas and small and medium-sized towns and cities, and the nation’s fifth 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 geographic
footprint.
Assuming the Verizon Transaction closes, based on the lower level of Spinco debt we will be assuming
from Spinco relative to Spinco’s projected operating cash flows, the combined company’s overall debt
will increase but its capacity to service the debt will be significantly enhanced as compared to Frontier’s
capacity today. At December 31, 2009, Frontier’s net debt to 2009 operating cash flow (“leverage
ratio”) was 3.9 times. It is expected that the combined company’s leverage ratio will be significantly
lower at closing.
•Debt Refinancing
During 2009, we completed two registered offerings of senior unsecured notes for an aggregate $1.2
billion principal amount. The proceeds were used to repurchase approximately $1.1 billion of our long-
term debt, primarily with maturities in 2011 and 2013. As a result of these debt transactions, as of
December 31, 2009, we had reduced our debt maturities through 2013 to approximately $7.2 million
maturing in 2010, $280.0 million maturing in 2011, $180.4 million maturing in 2012, and $709.9
million maturing in 2013. We do not expect the Verizon Transaction to change the amount of these
near-term debt maturities.
•Stockholder Value
During 2009, we continued to pay an annual dividend of $1.00 per common share. In connection with
the Verizon Transaction, we announced that the annual dividend would be reduced to $0.75 per share
upon completion of the Verizon Transaction. Payment of dividends is at the discretion of our Board of
Directors.
•Product Growth
During 2009, we added approximately 56,000 new High-Speed Internet (HSI) subscribers. At December
31, 2009, we had approximately 636,000 HSI customers. We offer a television product with the DISH
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES