Frontier Communications 2010 Annual Report Download

Download and view the complete annual report

Please find the complete 2010 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 104

  • 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

FRONTIER COMMUNICATIONS CORPORATION
2010 ANNUAL REPORT

Table of contents

  • Page 1
    FRONTIER COMMUNICATIONS CORPORATION 2010 ANNUAL REPORT

  • Page 2
    ... 3 High Ridge Park Stamford, Connecticut (Zip Code) (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 Stock...

  • Page 3
    ... Risk ...Financial Statements and Supplementary Data...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance...

  • Page 4
    ... Internet access and long distance services and broadband video provided to designated customers in the Territories (which we refer to as the Acquired Business). This transaction (the Transaction or the Merger) was financed with approximately $5.2 billion of common stock (Verizon shareholders...

  • Page 5
    ...31, 2010, we operated as an incumbent local exchange carrier (ILEC) in 27 states. Our business is with both residential and business customers. Our services include: • local and long distance voice services; • data and internet services; • access services; • directory services; and • video...

  • Page 6
    ... sale of voice, data and video services as bundled packages and the use of promotions and incentives, including gifts such as personal computers, digital cameras and gift cards, to drive market share. We believe these marketing strategies yield increased revenue per customer, strengthened customer...

  • Page 7
    ... wireline services to residential and business customers in our service areas; (2) data and Internet services and wireless data services; (3) network access to interexchange carriers for origination and termination of long distance voice and data traffic; and (4) directory listing and advertising...

  • Page 8
    ...services are billed either as unlimited/fixed number of minutes in advance or on a per minute-of-use basis. 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, video and Internet...

  • Page 9
    ... 1% 5% 100% Note: This table includes fiber optic and DSL High-Speed Internet subscribers. (1) Includes Tennessee, Nevada, Iowa, Nebraska, Alabama, Utah, Georgia, New Mexico, Montana, Mississippi and Florida. Change in the number of our access lines is one factor that is important to our revenue...

  • Page 10
    ... video products have a value of 1. Long distance, Frontier Peace of Mind, second lines, feature packages and dial-up have a value of 0.5. Network Architecture and Technology Our local exchange carrier networks consist of central office hosts and remote sites, primarily equipped with digital switches...

  • Page 11
    ... line customers. Our bundled services include HSI, unlimited long distance calling, enhanced telephone features and video offerings. We are also focused on increasing sales of existing products, including unlimited long distance minutes, bundles of long distance minutes, wireless data, Internet...

  • Page 12
    ... of existing rates on residential and business products and wholesale prices and terms of interconnection agreements with competitive local exchange carriers and arrangements with carriers that, in each case, existed as of the time of the Transaction), continuation of product bundle offerings that...

  • Page 13
    ... for intrastate services, including rates for intrastate access services paid by providers of intrastate long distance services. Recent and potential regulatory developments Federal legislators, the FCC and state regulators are currently considering a number of proposals for changing the manner...

  • Page 14
    ... Internet access service, commonly delivered by DSL or fiber technology, as well as mobile wireless based broadband Internet access service and other forms of broadband Internet access services on an equal regulatory footing with cable modem service. This approach is consistent with a United States...

  • Page 15
    ... compliance with the new regulations their complete effect on our business is not yet known. Video programming. Federal, state and local governments extensively regulate the video services industry. Our fiber optic video service is subject to, among other things, subscriber privacy regulations...

  • Page 16
    ... also be 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...

  • Page 17
    ... 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 as wireless displacement of wireline use, e-mail use, instant messaging and increasing use...

  • Page 18
    ..., including increasing marketing promotions and related expenditures and launching new products and services with a focus on areas that are growing or demonstrate meaningful demand, such as wireline and wireless HSI, satellite video products and the "Frontier Peace of Mind" suite of products...

  • Page 19
    ... the operations of our legacy business and the Acquired Business, which may decrease the time it will have to serve existing customers, attract new customers and develop new services or strategies. The size and complexity of the Acquired Business and the use of our existing common support functions...

  • Page 20
    ... the Code if there is a 50% or more change in ownership of the Acquired Business, directly or indirectly, as part of a plan or series of related transactions that include the Transaction. Because Verizon stockholders collectively owned more than 50% of the Frontier common stock following the Merger...

  • Page 21
    ... could jeopardize the tax-free status of the spin-off or the merger, and such restrictions could be significant." The number of shares of our common stock 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...

  • Page 22
    ... in competition, offering new services, and improving the capabilities of, or reducing the maintenance costs associated with, our plant may cause our capital expenditures to increase in the future. In addition, our dividend, at an annual rate of $0.75 per share as of July 1, 2010, will utilize...

  • Page 23
    ...or 4%, for the second half of 2010) are derived from switched access charges paid by other carriers for services Frontier legacy operations or the Acquired Business, as the case may be, provides (or provided) in originating and terminating intrastate and interstate long distance traffic. As a result...

  • Page 24
    ...Frontier's 2010 total revenues, including approximately $41.1 million of Frontier legacy revenues and approximately $32.7 million of the Acquired Business' revenues for the second half of 2010, represent a surcharge to customers (local, long distance and interconnection) to recover universal service...

  • Page 25
    FRONTIER 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 ...

  • Page 26
    ...the Senior Vice President and Chief Financial Officer of Southern New England Telecommunications Corporation and for more than 16 years at Arthur Andersen, where his last position was as Partner in Charge of the North American Telecom Industry. KATHLEEN Q. ABERNATHY joined Frontier's management team...

  • Page 27
    ... CORPORATION AND SUBSIDIARIES MELINDA WHITE has been with Frontier since January 2005. She is currently Executive Vice President, Revenue Development. Previously, she was Executive Vice President and General Manager, Marketing and New Business Operations from November 2009 to December 2010...

  • Page 28
    ... compares the cumulative total return of our common stock to the S&P 500 Stock Index and to the S&P Telecommunication Services Index for the five-year period commencing December 31, 2005. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN Among Frontier Communications Corporation, the S&P 500 index...

  • Page 29
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased Average Price Paid per Share October 1, 2010 to October 31, 2010 Employee Transactions(1) ...November 1, 2010 to November 30, 2010 Employee Transactions(1) ...December ...

  • Page 30
    ... to common shareholders of Frontier...Basic income per share of common stock from continuing operations(3).. Earnings attributable to common shareholders of Frontier per basic share(3) ...Earnings attributable to common shareholders of Frontier per diluted share(3) ...Cash dividends declared (and...

  • Page 31
    ... or profitable basis; • Reductions in the number of our access lines that cannot be offset by increases in HSI subscribers and sales of other products and services; • The effects of ongoing changes in the regulation of the communications industry as a result of federal and state legislation and...

  • Page 32
    ... of increased medical, retiree and pension expenses and related funding requirements; • Changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments; • The effects of state regulatory cash management practices that could limit our ability to transfer cash...

  • Page 33
    ... our operating cash flows, existing cash balances, and new revolving credit facility will be adequate to finance our working capital requirements, fund capital expenditures, make required debt payments, pay taxes, pay dividends to our stockholders in accordance with our dividend policy, pay our...

  • Page 34
    ...Transaction Escrow) contributed by Frontier, were deposited into an escrow account. Immediately prior to the Merger, the proceeds of the notes offering (less the initial purchasers' discount) were released from the escrow account and used to make a special cash payment to Verizon, as contemplated by...

  • Page 35
    ... have an interest rate of 8.75% per annum. The Senior Notes were issued at a price equal to 100% of their face value. In the third quarter of 2010, we completed an exchange offer for the privately placed Senior Notes for registered notes. Upon completion of the Merger, we also assumed additional...

  • Page 36
    ... tender offers, exchanges of debt securities, by exercising rights to call or in privately negotiated transactions. We may also refinance existing debt or exchange existing debt for newly issued debt obligations. Interest Rate Management On January 15, 2008, we terminated all of our interest rate...

  • Page 37
    ...,778,300 shares of our common stock at an aggregate cost of $200.0 million. Dividends We intend to pay regular quarterly dividends. Our ability to fund a regular quarterly dividend will be impacted by our ability to generate cash from operations. The declarations and payment of future dividends will...

  • Page 38
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Critical Accounting Policies and Estimates We review all significant estimates affecting our consolidated financial statements on a recurring basis and record the effect of any necessary adjustment prior to their publication. Uncertainties with ...

  • Page 39
    ... retiree medical benefits and related liabilities are "critical accounting estimates." In connection with the completion of the Merger on July 1, 2010, certain employees were transferred from various Verizon pension plans into 12 pension plans that were then merged with the Frontier Communications...

  • Page 40
    ... 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 41
    ... federal and state subsidies) declined and decreased as a percentage of our total revenues. This decline for our Frontier legacy operations in 2010 is a result of decreases in the number of residential and business customers, switched access revenue, long distance services revenue and directory...

  • Page 42
    ... (including wireless substitution), economic conditions, changing technology, competition, and by the loss of second lines upon the addition of HSI or cable modem service. Our Frontier legacy operations lost approximately 128,000 access lines (net) during 2010, or 6% on an annual basis, comparable...

  • Page 43
    ... $ 485.72 (7%) (5%) 6% 2% 20% (6%) 1,347,423 $ 949,284 2.37 $ 56.42 44.6% 1.57% Products per residential customer: primary residential voice line, HSI and video products have a value of 1. Long distance, Frontier Peace of Mind, second lines, feature packages and dial-up have a value of 0.5. 42

  • Page 44
    ... of access lines and, to a lesser extent, decreases in private line services and feature packages. Long distance services revenue for our Frontier legacy operations for 2010 increased $4.2 million as compared with 2009, primarily due to an increase in the number of long distance customers using our...

  • Page 45
    ...of use by wireless, email and other communications services. Switched access and subsidy revenue includes subsidy payments we receive from federal and state agencies, including surcharges billed to customers which are remitted to the FCC. Subsidy revenue for our Frontier legacy operations, including...

  • Page 46
    ... gift" costs (e.g., personal computers), higher long distance carriage costs and additional data backbone costs. During 2008, we expensed $4.2 million of promotional costs for Master Card gift cards issued to new HSI customers entering into a two-year price protection plan and to existing customers...

  • Page 47
    ... 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. OTHER OPERATING EXPENSES 2010 2009 2008 As Acquired Frontier $ Increase % Increase $ Increase % Increase Reported Business Legacy (Decrease...

  • Page 48
    ..., Inc., Global Valley Networks, Inc. and GVN Services. Amortization expense for certain other Frontier legacy properties was $126.4 million for 2008. ACQUISITION AND INTEGRATION COSTS 2010 2009 2008 As Acquired Frontier $ Increase % Increase $ Increase % Increase Reported Business Legacy (Decrease...

  • Page 49
    ... rates. Our average cash balances were $304.7 million, $318.0 million and $177.5 million for 2010, 2009 and 2008, respectively. Other Income (Loss), net Other income (loss), net for 2010 improved $54.8 million to $13.7 million as compared with 2009, primarily due to the loss on early retirement...

  • Page 50
    ...of the Acquired Business. The effective tax rate for 2010 was 42.5% as compared with 36.2% for 2009 and 36.6% for 2008. In the third quarter of 2010, Frontier wrote-off certain deferred tax assets of approximately $11.3 million related to Merger transaction costs which were not tax deductible. Prior...

  • Page 51
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES and we are not party to any market risk management agreements other than in the normal course of business. Our primary market risk exposures are interest rate risk and equity price risk as follows: Interest Rate Exposure Our exposure to market ...

  • Page 52
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Item 8. Financial Statements and Supplementary Data The following documents are filed as part of this Report: 1. Financial Statements-See Index on page F-1. 2. Supplementary Data-Quarterly Financial Data is included in the Financial Statements (...

  • Page 53
    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 2011 Annual Meeting of Stockholders to be filed with the SEC ...

  • Page 54
    ...filed July 1, 2010).* 3.4 - By-laws, as amended February 6, 2009 (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on February 6, 2009).* 4.1 - Rights Agreement, dated as of March 6, 2002, between the Company and Mellon Investor Services, LLC, as Rights Agent (filed as Exhibit...

  • Page 55
    FRONTIER COMMUNICATIONS CORPORATION... Senior...Current Report on Form 8-K filed on October 1, 2009).* 4.22 - Indenture, dated as of April 12, 2010 (the "April 2010 Indenture"), as amended, between Spinco and The Bank of New York Mellon, as Trustee (filed as Exhibit 4.22 to Spinco's Registration Statement...

  • Page 56
    ... thereto, and Deutsche Bank AG, New York Branch, as Administrative Agent and Issuing Bank (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on September 14, 2010).* 10.8 - Distribution Agreement, dated as of May 13, 2009, by and among Verizon and Spinco ("Distribution Agreement...

  • Page 57
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Exhibit No. Description 10.14 - 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 10-K for the year ended December 31, 2008 (the "2008 10...

  • Page 58
    ... the Company and Integra Telecom Holdings, Inc. dated February 6, 2006 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 9, 2006).* 10.36 - Stock Purchase Agreement, dated as of July 3, 2007, between the Company and Country Road Communications LLC (filed as Exhibit...

  • Page 59
    ... authorized. FRONTIER COMMUNICATIONS CORPORATION (Registrant) February 25, 2011 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 60
    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, 2010 and 2009 ......

  • Page 61
    ..., included in the consolidated financial statements of Frontier Communications Corporation and subsidiaries as of and for the year ended December 31, 2010, and will include its assessment of internal control over financial reporting for the Acquired Business in our Annual Report on Form 10-K for our...

  • Page 62
    ... ACCOUNTING FIRM The Board of Directors and Shareholders Frontier Communications Corporation: We have audited the accompanying consolidated balance sheets of Frontier Communications Corporation and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations...

  • Page 63
    ... 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, 2010 and 2009, and the related consolidated statements of operations, equity...

  • Page 64
    ... within one year...Accounts payable...Advanced billings ...Accrued other taxes ...Accrued interest ...Other current liabilities ...Total current liabilities ...Deferred income taxes ...Pension and other postretirement benefits...Other liabilities ...Long-term debt ...Equity: Shareholders' equity of...

  • Page 65
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008 ($ in thousands, except for per-share amounts) 2010 2009 2008 Revenue ...Operating expenses: Network access expenses ...Other operating expenses ......

  • Page 66
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008 ($ and shares in thousands, except for per-share amounts) Frontier Shareholders Accumulated Additional Other Paid-In Retained Comprehensive Capital Earnings ...

  • Page 67
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008 ($ in thousands) 2010 2009 2008 Net income ...Other comprehensive income (loss), net of tax (see Note 15) . . Comprehensive income ...Less: ...

  • Page 68
    ......Change in accounts payable and other liabilities...Change in prepaid expenses, income taxes and other current assets ...Net cash provided by operating activities ...Cash flows provided from (used by) investing activities: Cash transferred to escrow ...Capital expenditures-Business operations...

  • Page 69
    ... of Business and Summary of Significant Accounting Policies: (a) Description of Business: Frontier Communications Corporation (Frontier) is a communications company providing services predominantly to rural areas and small and medium-sized towns and cities as an incumbent local exchange carrier, or...

  • Page 70
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements $73.8 million, $35.5 million and $37.1 million for the years ended December 31, 2010, 2009 and 2008, respectively. (e) Property, Plant and Equipment: Property, plant and equipment are stated at original ...

  • Page 71
    ... of California bordering Arizona, Nevada and Oregon (collectively, the Territories), including Internet access and long distance services and broadband video provided to designated customers in the Territories (the Acquired Business). Frontier is considered the accounting acquirer of the Acquired...

  • Page 72
    ... price allocation will be revised. The fair value of the total consideration issued to acquire the Acquired Business amounted to $5.4 billion and included $5.2 billion for the issuance of Frontier common shares and cash payments of $105.0 million. As a result of the Merger, Verizon stockholders...

  • Page 73
    ... costs and does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the Merger. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS INFORMATION For the year ended December 31, 2010 2009 ($ in millions, except per share...

  • Page 74
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements An analysis of the activity in the allowance for doubtful accounts for the years ended December 31, 2010, 2009 and 2008 is as follows: Balance at beginning of Period Charged to bad debt expense* Additions...

  • Page 75
    ...New the Transaction Borrowings Interest Rate* at December 31, 2010 ($ in thousands) December 31, 2009 Payments December 31, 2010 Rural Utilities Service Loan Contracts ...Senior Unsecured Debt...Industrial Development Revenue Bonds ...TOTAL LONG-TERM DEBT ...Less: Debt Discount ...Less: Current...

  • Page 76
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Additional information regarding our Senior Unsecured Debt at December 31, 2010 and 2009 is as follows: 2010 ($ in thousands) Principal Outstanding Interest Rate Principal Outstanding 2009 Interest Rate ...

  • Page 77
    ...Transaction Escrow) contributed by Frontier, were deposited into an escrow account. Immediately prior to the Merger, the proceeds of the notes offering (less the initial purchasers' discount) were released from the escrow account and used to make a special cash payment to Verizon, as contemplated by...

  • Page 78
    ...The repurchases resulted in a loss on the early retirement of debt of $53.7 million, which we recognized and included in Other income (loss), net in our consolidated statement of operations for the year ended December 31, 2009. In addition to the debt tender offer, we used $388.9 million of the debt...

  • Page 79
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements market value, at the 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 ...

  • Page 80
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (11) Capital Stock: On October 27, 2009, in conjunction with the shareholder vote to approve the Transaction, our stockholders approved an increase in the number of authorized shares of Frontier common ...

  • Page 81
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following summary presents information regarding outstanding stock options and changes with regard to options under the EIP: Shares Subject to Option Weighted Average Option Price Per Share Weighted ...

  • Page 82
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following summary presents information regarding unvested restricted stock and changes with regard to restricted stock under the EIP: Number of Shares Weighted Average Grant Date Fair Value Aggregate ...

  • Page 83
    ... the director elected stock units, the number of units credited to the director's account is determined as follows: the total cash value of the fees payable to the director are divided by 85% of the closing prices of Frontier common stock on the last business day of the calendar quarter in which the...

  • Page 84
    ... taxes computed at Federal statutory rates to the effective rates for the years ended December 31, 2010, 2009 and 2008: 2010 2009 2008 Consolidated tax provision at federal statutory rate ...State income tax provisions, net of federal income tax benefit ...Non-deductible transaction costs ...Tax...

  • Page 85
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The components of the net deferred income tax liability (asset) at December 31 are as follows: ($ in thousands) 2010 2009 Deferred income tax liabilities: Property, plant and equipment basis differences ...

  • Page 86
    ... taxes charged or credited to shareholders' equity of Frontier, includes amounts both payable currently and deferred for payment in future periods as indicated below: ($ in thousands) 2010 2009 2008 Income taxes charged to the consolidated statement of operations: Current: Federal ...State ...Total...

  • Page 87
    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, 2010 and 2009: ($ in thousands) 2010 2009 Unrecognized tax benefits-...

  • Page 88
    ... to common shareholders of Frontier. Stock Units At December 31, 2010, 2009 and 2008, we had 434,765, 440,463 and 324,806 stock units, respectively, issued under the Director Plans. These securities have not been included in the diluted income per share of common stock calculation because...

  • Page 89
    ...159,157) (16) Segment Information: We operate in one reportable segment, Frontier. Frontier provides both regulated and unregulated voice, data and video services to residential, business and wholesale customers and is typically the incumbent provider in its service areas. As permitted by U.S. GAAP...

  • Page 90
    ... tax) on the early retirement of debt in connection with a $700.0 million debt tender offer. (18) Retirement Plans: We sponsor a noncontributory defined benefit pension plan covering a significant number of our former and current employees and other postretirement benefit plans that provide medical...

  • Page 91
    ... of Acquired Business at contracted discount rate ...Actuarial adjustment to PBO for plans of Acquired Business(1) ...Service cost ...Interest cost ...Actuarial loss/(gain)...Benefits paid ...Plan change ...Special termination benefits ...PBO at end of year ...Change in plan assets Fair value of...

  • Page 92
    ... and valuation of the year-end obligations were as follows: 2010 2009 2008 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 ... 5.25% 5.75% 8.00% 3.00% 5.75...

  • Page 93
    ... of year for Frontier Legacy operations ...Benefit obligation for Acquired Business as of acquisition date...Service cost ...Interest cost ...Plan participants' contributions ...Actuarial loss...Benefits paid ...Plan change ...Benefit obligation at end of year ...Change in plan assets Fair value of...

  • Page 94
    ...in 2011 is $13.8 million. For purposes of measuring year-end benefit obligations, we used, depending on medical plan coverage for different retiree groups, an 8.0% annual rate of increase in the per-capita cost of covered medical benefits, gradually decreasing to 5% in the year 2017 and remaining at...

  • Page 95
    ...The amount for 2010 includes employer contributions of $10.6 million for certain former employees of the Acquired Business under three separate plans. (19) Fair Value of Financial Instruments: Fair value is defined under U.S. GAAP as the exit price associated with the sale of an asset or transfer of...

  • Page 96
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following tables represent the Company's pension plan assets measured at fair value on a recurring basis as of December 31, 2010 and 2009: Fair Value Measurements at December 31, 2010 Quoted Prices in...

  • Page 97
    ... Obligations ...Corporate and Other Obligations ...Common Stock ...Commingled Funds...Common/Collective Trust Funds ...Interest in Registered Investment Companies Interest in Limited Partnerships ...Insurance Contracts ...Other...Total investments, at fair value ...Interest and Dividends Receivable...

  • Page 98
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table provides further information regarding the redemption of the Plan's Level 3 investments as of December 31, 2010: ($ in thousands) Fair Value Redemption Frequency Redemption Notice ...

  • Page 99
    ...of credit will decrease over time as Frontier makes the required capital expenditures in the respective states. We are party to various legal proceedings arising in the normal course of our business covering a wide range of matters or types of claims including general contract, rights of access, tax...

  • Page 100
    ... future payments for obligations under our noncancelable long distance contracts and service agreements are as follows: ($ in thousands) Year Amount 2011 ...2012 ...2013 ...2014 ...2015 ...Thereafter ...Total... $ 45,722 33,829 29,053 256 192 - $109,052 We sold all of our utility businesses as...

  • Page 101
    ... outcome. At December 31, 2010, we have outstanding performance letters of credit as follows: ($ in thousands) Public Service Commission of West Virginia...CNA ...State of New York ...Other ...Total... $190,000 38,159 1,042 705 $229,906 CNA serves as our agent with respect to general liability...

  • Page 102
    ... 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 2010 Form 10-K report filed with the U.S. Securities and Exchange Commission and other information about...

  • Page 103
    ... the leader in providing communications services to residential and business customers in our markets OUR VALUES Put the customer first Treat one another with respect Keep our commitments; Be accountable Be ethical in all of our dealings Be innovative; Take the initiative Be team players Be active...

  • Page 104
    Frontier Communications Corporation Three High Ridge Park Stamford, CT 06905-1390 203-614-5600