Frontier Communications 2010 Annual Report Download - page 34

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Cash Flow provided by Operating Activities
Cash flow provided by operating activities improved $479.5 million, or 65%, in 2010 as compared to
2009. The improvement was primarily the result of incremental cash flow from the Acquired Business.
Cash paid for taxes was $19.9 million, $59.7 million and $78.9 million in 2010, 2009 and 2008,
respectively. Our 2010 cash taxes were lower than 2009 due to the impact of bonus depreciation in accordance
with the 2010 Tax Relief Act. We expect that in 2011 our cash taxes will be approximately $50 million to $75
million. Our 2011 cash tax estimate reflects the continued impact of bonus depreciation under the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
In connection with the Transaction, the Company undertook activities to plan and implement information
systems conversions and other initiatives necessary to effectuate the Merger, which occurred on July 1, 2010.
As a result, the Company incurred $137.1 million of acquisition and integration costs related to integration
activities during 2010.
Cash Flow used by Investing Activities
Acquisitions
On July 1, 2010, Frontier issued common shares with a value of $5.2 billion and made payments of $105.0
million in cash as consideration for the Acquired Business. In addition, as part of the Transaction, Frontier
assumed approximately $3.5 billion in debt.
Capital Expenditures
In 2010, 2009 and 2008, our capital expenditures were $577.9 million (including $97.0 million of
integration–related capital expenditures), $256.0 million (including $25.0 million of integration-related capital
expenditures) and $288.3 million, respectively. Capital expenditures in 2010 included $254.2 million associated
with the Acquired Business. We continue to closely scrutinize all of our capital projects, emphasize return on
investment and focus our capital expenditures on areas and services that have the greatest opportunities with
respect to revenue growth and cost reduction. We anticipate total capital expenditures of approximately $750
million to $780 million for 2011 related to our Frontier legacy properties and the Acquired Business.
In connection with the Transaction, the Company undertook activities to plan and implement systems
conversions and other initiatives necessary to effectuate the closing, which occurred on July 1, 2010. As a
result, the Company incurred $97.0 million and $25.0 million of capital expenditures related to these
integration activities in 2010 and 2009, respectively.
Cash Flow used by and provided from Financing Activities
Issuance of Debt Securities
On April 12, 2010, and in anticipation of the Merger, the Verizon subsidiary then holding the assets of the
Acquired Business completed a private offering of $3.2 billion aggregate principal amount of senior notes. The
gross proceeds of the offering, plus $125.5 million (the 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 the Transaction, with amounts in excess of the special cash payment and the initial
purchasers’ discount received by the Company (approximately $53.0 million). In addition, the $125.5 million
Transaction Escrow was returned to the Company.
Upon completion of the Merger, we entered into a supplemental indenture with The Bank of New York
Mellon, as Trustee, pursuant to which we assumed the obligations under the senior notes.
The senior notes consist of $500.0 million aggregate principal amount of Senior Notes due 2015 (the 2015
Notes), $1.1 billion aggregate principal amount of Senior Notes due 2017 (the 2017 Notes), $1.1 billion
aggregate principal amount of Senior Notes due 2020 (the 2020 Notes) and $500.0 million aggregate principal
amount of Senior Notes due 2022 (the 2022 Notes).
33
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES