Frontier Communications 2009 Annual Report Download - page 50

OTHER OPERATING EXPENSES
($ in thousands) Amount
$ Increase
(Decrease)
% Increase
(Decrease) Amount
$ Increase
(Decrease)
% Increase
(Decrease) Amount
2009 2008 2007
Wage and benefit expenses . . . . . . . . . . . $360,551 $(23,173) (6%) $383,724 $(12,210) (3%) $395,934
Pension costs . . . . . ................... 34,196 34,033 NM 163 14,771 101% (14,608)
Severance and early retirement costs . . 3,788 (3,810) (50%) 7,598 (6,276) (45%) 13,874
Stock based compensation . . . . . . . . . . . . 9,368 1,580 20% 7,788 (1,234) (14%) 9,022
All other operating expenses. . . . . . . . . . 373,194 (38,281) (9%) 411,475 7,196 2% 404,279
$781,097 $(29,651) (4%) $810,748 $ 2,247 0% $808,501
Wage and benefit expenses
Wage and benefit expenses for 2009 decreased $23.2 million, or 6%, to $360.6 million as compared to
2008, primarily due to headcount reductions, decreases in compensation, reduced overtime costs and lower
benefit expenses.
Wage and benefit expenses for 2008 decreased $12.2 million, or 3%, to $383.7 million as compared to
2007. Wage and benefit expenses related to the CTE 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 of the CTE and GVN operations acquired in 2007.
Pension Costs
The decline in the value of our pension plan assets during 2008 resulted in an increase in our pension
expense in 2009. Pension costs for 2009 and 2008 were approximately $34.2 million and $0.2 million,
respectively. Pension costs for 2009 include pension expense of $41.7 million, less amounts capitalized into the
cost of capital expenditures of $7.5 million.
Pension costs for 2008 and 2007 were approximately $0.2 million and $(14.6) million, respectively. The
amount for 2007 includes the costs for our CTE plans acquired in 2007 and reflects 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. Also, effective December 31, 2007, the CTE Employees’ Pension Plan was
merged into the Frontier Pension Plan.
The Company’s pension plan assets have increased from $589.8 million at December 31, 2008 to $608.6
million at December 31, 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.
Based on current assumptions and plan asset values, we estimate that our 2010 pension and other
postretirement benefit expenses (which were $48.6 million in 2009) will be approximately $45.0 million to
$55.0 million. No contributions were made to Frontier’s pension plan during 2007, 2008 and 2009. We expect
that we will make a $10.0 million cash contribution to our pension plan in 2010.
Severance and early retirement costs
Severance and early retirement costs for 2009 decreased $3.8 million, or 50%, to $3.8 million as compared
with 2008.
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.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES