Frontier Communications 2011 Annual Report Download

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FRONTIER COMMUNICATIONS CORPORATION
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2011

Table of contents

  • Page 1
    FRONTIER COMMUNICATIONS CORPORATION FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2011

  • Page 2
    ...11001 FRONTIER COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 3 High Ridge Park Stamford, Connecticut (Address of principal executive offices) Registrant's telephone number, including area code...

  • Page 3
    DOCUMENT INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Company's 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

  • Page 4
    ... 12. Directors, 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 53 54...

  • Page 5
    ... July 1, 2010, Frontier acquired the defined assets and liabilities of the local exchange business and related landline activities of Verizon Communications Inc. (Verizon) in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia...

  • Page 6
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES • Dividend Policy During 2011, we paid cash dividends at an annual rate of $0.75 per share. Effective February 16, 2012, our Board of Directors set the annual cash dividend at $0.40 per share. The Board reduced the dividend in order to ...

  • Page 7
    ... a focus on areas that are growing or demonstrate meaningful demand, such as wireless HSI, satellite video products, Internet advertising and "Frontier Secure" computer security and technical support. We will continue to focus on growing those products and services and to offer new ones, should we...

  • Page 8
    ... with 100% U.S.-based personnel. Generation of Revenue We generate revenue primarily by providing: (1) basic local and long distance voice wireline services to residential and business customers in our service areas; (2) data and Internet services and wireless data services; (3) network access to 5

  • Page 9
    ...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 10
    ...of December 31, 2011. State West Virginia...Indiana...New York...Illinois...Ohio...Washington...Michigan...Pennsylvania...Oregon...Wisconsin...North Carolina...Minnesota...California...Arizona...Idaho...South Carolina...Other States (1)...Total ... Total Access lines and HSI subscribers 741,158 719...

  • Page 11
    ... between our host and remote central offices and interconnection points with other incumbent carriers. Our fiber optic and copper transport system is capable of supporting increasing customer demand for high bandwidth transport services. We are currently upgrading our network with the latest...

  • Page 12
    ... 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 13
    ... usage of our network by our customers who may use alternative providers for voice and data services; and reductions in prices for our services which may be necessary to meet competition. Under the 1996 Act, state regulatory commissions have jurisdiction to arbitrate and review interconnection...

  • Page 14
    ...states where Frontier operates continue to evaluate the manner in which they will determine state subsidy eligibility. Telephone companies are subject to FCC rules governing privacy of certain customer information. Among other things, these rules obligate carriers to implement procedures to: protect...

  • Page 15
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES services, including rates for intrastate access services paid by providers of intrastate long distance services. The FCC's USF/ICC Report & Order, however, removes much of the states' authority to set terminating intrastate switched access rates....

  • Page 16
    ... marketed to subscribers; and program access requirements. We provide video programming, on a limited basis, in Oregon, Washington and Indiana pursuant to franchises, permits and similar authorizations issued by local franchising authorities utilizing fiber optic delivery transport to the home. Most...

  • Page 17
    .... We also make our Annual Report available in printed form upon request at no charge. We also make available on our website, or in printed form upon request, free of charge, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters for the Audit, Compensation, and...

  • Page 18
    ... as wireless displacement of wireline use, e-mail use, instant messaging and increasing use of VoIP), technology changes and regulatory constraints. For example, Frontier's access lines declined 8% in 2011 and 9% in 2010 on a full year pro forma basis. In addition, Frontier's switched access minutes...

  • Page 19
    ... available under our revolving credit facility, will be sufficient to service our debt, fund our capital expenditures, pay our taxes, fund our pension and other employee benefit obligations and pay dividends pursuant to our dividend policy. We have identified some potential areas of opportunity and...

  • Page 20
    ... customer early termination fees and restrictions on others, restrictions on caps on usage of broadband capacity, and certain minimum service quality standards for a defined period of time (the failure of which to meet, in one state, will result in penalties, including cash management limitations...

  • Page 21
    ... basis may be limited, which may have an adverse impact on our results of operations. If the Transaction does not qualify as tax-free under Section 355 of the Internal Revenue Code (the Code), including as a result of subsequent acquisitions of stock of Frontier, then Verizon or Verizon stockholders...

  • Page 22
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Because of these restrictions, until July 2012, we may be limited in the amount of capital stock that we can issue to make acquisitions or to raise additional capital. Also, our indemnity obligation to Verizon may discourage, delay or prevent a ...

  • Page 23
    ... capital to upgrade and enhance our operations. The Acquired Business' historical capital expenditures, excluding expenditures relating to the fiber-to-the-home network, were significantly lower than our level of capital expenditures for our legacy operations when compared on a per access line basis...

  • Page 24
    ... Order preempts the states with regard to the regulation of intrastate terminating access rates. The reform of the Universal Service Fund shifts the existing High-Cost portion of the fund from supporting voice services to supporting broadband deployment in high-cost areas. The USF/ICC Report & Order...

  • Page 25
    ... Internet practices. We use encryption and authentication technology licensed from third parties to provide secure transmission of confidential information, including our business data and customer information. We also rely on employees in our network operations centers, data centers, call centers...

  • Page 26
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES In addition, our Company or our customers using our network to access the Internet may become victim to malicious and abusive Internet activities, including unsolicited mass advertising ("spam"), peer-to-peer file sharing, distribution of viruses...

  • Page 27
    ...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 28
    ... Vice President, Citizens Arizona Energy from April 1998 to March 2001. CECILIA K. McKENNEY has been with Frontier since February 2006. She is currently Executive Vice President, Human Resources and Call Center Sales & Service. Previously, she was Senior Vice President, Human Resources from February...

  • Page 29
    ... $0.75 per share of common stock, paid quarterly. Effective February 16, 2012, our Board of Directors set the annual cash dividend at $0.40 per share. Cash dividends paid to shareholders were approximately $746.6 million, $529.4 million and $312.4 million in 2011, 2010 and 2009, respectively. There...

  • Page 30
    ...Frontier Communications Corporation S&P 500 Index S&P Telecommunication Services The graph assumes that $100 was invested on December 31, 2006 in each of our common stock, the S&P 500 Stock Index and the S&P Telecommunication Services Index and that all dividends were reinvested. INDEXED RETURNS...

  • Page 31
    ... (under the terms of grants 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...

  • Page 32
    ... activities for the Acquired Business from the date of its acquisition from Verizon on July 1, 2010, and for Commonwealth Telephone Enterprises, Inc. (Commonwealth or CTE) from the date of its acquisition on March 8, 2007 and for Global Valley Networks, Inc. and GVN Services (together GVN) from the...

  • Page 33
    ... of our access lines that cannot be offset by increases in High-Speed Internet (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 regulation, or changes in the...

  • Page 34
    ...tax assessments; The effects of state regulatory cash management practices that could limit our ability to transfer cash among our subsidiaries or dividend funds up to the parent company; Our ability to successfully renegotiate union contracts expiring in 2012 and thereafter; Changes in pension plan...

  • Page 35
    ...2012. Our 2011 savings from our targeted initiatives list (which includes, but is not limited to, network cost savings, contractor reductions, cancellation or reduction of vendor services, benefit changes and real estate savings) was approximately $156 million, or $248 million on an annualized basis...

  • Page 36
    ... debt payments, pay taxes, pay dividends to our stockholders, pay our integration costs and capital expenditures, and support our short-term and long-term operating strategies through 2012. Effective February 16, 2012, our Board of Directors set the annual cash dividend at $0.40 per share. The...

  • Page 37
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES aggregate annual rent of approximately $5.8 million. The properties are managed on behalf of the pension plan by an independent fiduciary, and the terms of the leases were negotiated with the fiduciary on an arm's-length basis. In connection with...

  • Page 38
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES 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 Transaction, we ...

  • Page 39
    ...general corporate purposes but may not be used to fund dividend payments. Letter of Credit Facility We also have a $100.0 million unsecured letter of credit facility. The terms of the letter of credit facility are set forth in a Credit Agreement, dated as of September 8, 2010, among the Company, the...

  • Page 40
    ... 2011 and 2010, we had no "critical estimates" related to bankruptcies of telecommunications companies or any other customers. Asset Impairment We review long-lived assets to be held and used, including customer lists, and long-lived assets to be disposed of for impairment whenever events or changes...

  • Page 41
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES we periodically reassess the useful lives of our tangible and intangible assets to determine whether any changes are required. In 2011 and 2010, we had no "critical estimates" related to asset impairments. Intangibles Our indefinite lived ...

  • Page 42
    ... 31, 2011, that will be settled by the transfer of assets in early 2012. We sponsor a noncontributory defined benefit pension plan covering a significant number of our current and former Frontier legacy employees and other postretirement benefit plans that provide medical, dental, life insurance and...

  • Page 43
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES the contribution of real property with a fair value of $58.1 million. We made cash contributions of $13.1 million in 2010. No contributions were made to our pension plan during 2009. Income Taxes Our effective tax rate in 2011 decreased to 35.9% ...

  • Page 44
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES not that the fair value of the reporting unit is less than its carrying value, then the traditional two-step goodwill impairment test must be performed. While ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for...

  • Page 45
    ... and business customers, services revenue, switched access revenue, long distance services revenue and directory revenue, partially offset by a $28.8 million, or 5%, increase in data and internet services revenue, each as described in more detail below. Change in the number of our access lines is...

  • Page 46
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES During 2011, we lost approximately 11,800 FiOS data customers and added approximately 57,000 other HSI subscribers. In connection with the Transaction, the Company agreed to focus primarily on certain capital investment commitments to expand ...

  • Page 47
    ...Products per residential customer: primary residential voice line, HSI and video products have a value of 1. Long distance, Frontier Secure, second lines, feature packages and dial-up have a value of 0.5. Calculation excludes the Mohave Cellular Limited Partnership. (2) Note: Customer revenue has...

  • Page 48
    ...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 bundled service offerings partially offset...

  • Page 49
    ... a decline in minutes of use related to access line losses and the displacement of minutes of use by wireless, email and other communications services. Subsidy revenue for our Frontier legacy operations, including surcharges billed to customers of $41.1 million, for 2010 of $114.0 million increased...

  • Page 50
    ... Acquired Business. Network access expenses for our Frontier legacy operations decreased $15.8 million, or 7%, to $210.1 million, as compared with 2009, primarily due to lower promotional gift and long distance carriage costs in 2010. In 2009, we expensed $10.0 million for the cost of new personal...

  • Page 51
    ... terms of the leases were negotiated with the fiduciary on an arm's-length basis. In connection with the completion of the Transaction 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 52
    ... with certain Frontier legacy properties, which were fully amortized in June 2009, and $56.3 million for intangible assets (customer base and trade name) that were acquired in the acquisitions of Commonwealth Telephone Enterprises, Inc., Global Valley Networks, Inc. and GVN Services. ACQUISITION AND...

  • Page 53
    ... due to the loss on early retirement of debt of $45.9 million recognized in 2009. 2010 reflects a $4.5 million gain on a life insurance policy settlement and an increase of $2.2 million in settlement of customer advances. Interest Expense Interest expense for 2011 increased $143.4 million, or 27...

  • Page 54
    ...income attributable to common shareholders of Frontier for 2011 was $149.6 million, or $0.15 per share, as compared to $152.7 million, or $0.23 per share, in 2010 and $120.8 million, or $0.38 per share, in 2009. The change in basic and diluted net income per share for 2010 and 2011 was primarily due...

  • Page 55
    ... long-term debt as of December 31, 2011 was approximately 93% fixed rate debt with minimal exposure to interest rate changes. We had no interest rate swap agreements related to our fixed rate debt in effect at December 31, 2011 and 2010. Our objectives in managing our interest rate risk are to limit...

  • Page 56
    ... and Corporate Governance Other Information The information required by this Item is incorporated by reference from our definitive proxy statement for the 2012 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2011. See "Executive...

  • Page 57
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Item 11. Executive Compensation The information required by this Item is incorporated by reference from our definitive proxy statement for the 2012 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 ...

  • Page 58
    ... 4.10 4.11 Description 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...

  • Page 59
    ... March 23, 2010, by and between Verizon Communications Inc. and Spinco (filed as Exhibit 10.11 to the Spinco Form 10).* Employee Matters Agreement, dated as of May 13, 2009, by and among Verizon, Spinco and the Company (filed as Exhibit 10.2 to the May 15, 2009 8-K).* Tax Sharing Agreement, dated as...

  • Page 60
    ... 10-K).* Offer of Employment Letter, dated January 20, 2010, between the Company and Kathleen Abernathy (filed as Exhibit 10.35 to the Spinco Form 10).* Offer of Employment Letter, dated March 31, 2011, between the Company and Susana D'Emic (filed as Exhibit 10.1 to the Company's Quarterly Report on...

  • Page 61
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES 101.SCH 101.PRE 101.CAL 101.LAB 101.DEF XBRL Taxonomy Extension Schema... Linkbase Document. XBRL Taxonomy Extension Definition Linkbase Document. Exhibits 10.10 through 10.30 are management contracts or compensatory plans or arrangements. 58

  • Page 62
    ... Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRONTIER COMMUNICATIONS CORPORATION (Registrant) By: /s/ Mary Agnes Wilderotter Mary Agnes Wilderotter Chairman of the Board, President and Chief Executive Officer February 23, 2012 59

  • Page 63
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 23rd day of February 2012. Signature Title /s/ ...

  • Page 64
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements Item Management's Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2011 and 2010 Consolidated ...

  • Page 65
    ... 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...

  • Page 66
    Report Of Independent Registered Public 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, 2011 and 2010, and the related...

  • Page 67
    ... (COSO). We also 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, 2011 and 2010, and the related consolidated statements...

  • Page 68
    ... taxes Pension and other postretirement benefits Other liabilities Long-term debt Equity: Shareholders' equity of Frontier: Common stock, $0.25 par value (1,750,000,000 authorized shares, 995,128,000 and 993,855,000 outstanding, respectively, and 1,027,986,000 issued, at December 31, 2011 and 2010...

  • Page 69
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 ($ in thousands, except for per-share amounts) 2011 Revenue Operating expenses: Network access expenses Other operating expenses Depreciation and ...

  • Page 70
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 ($ and shares in thousands) Frontier Shareholders Accumulated Additional Other Paid-In Retained Comprehensive Capital Earnings Loss $ 1,117,936 $ 38,163 $ (237,...

  • Page 71
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 ($ in thousands) 2011 Cash flows provided by (used in) operating activities: Net income Adjustments to reconcile net income to net cash provided by ...

  • 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 is initially deferred as...

  • Page 73
    ... tax basis of assets and liabilities using tax rates expected to be in effect when the temporary differences are expected to reverse. Stock Plans: We have various stock-based compensation plans. Awards under these plans are granted to eligible officers, management employees, non-management employees...

  • Page 74
    ... July 1, 2010, Frontier acquired the defined assets and liabilities of the local exchange business and related landline activities of Verizon Communications Inc. (Verizon) in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia...

  • Page 75
    ...COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The allocation of the purchase price of the Acquired Business is based on the fair value of assets acquired and liabilities assumed as of July 1, 2010, the effective date of the Transaction. Our assessment of fair...

  • Page 76
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS INFORMATION For the year ended December 31, 2010 2009 ($ in millions, except per share amounts) Revenue Operating income Net income ...

  • Page 77
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (5) Property, Plant and Equipment: The components of property, plant and equipment at December 31, 2011 and 2010 are as follows: Estimated Useful Lives N/A 41 years 5 to 17 years 5 to 11 years 49 years ...

  • Page 78
    ... 2011, 2010 and 2009 included $56.3 million in each year for intangible assets (customer base and trade name) that were acquired in the acquisitions of Commonwealth Telephone Enterprises, Inc. (Commonwealth), Global Valley Networks, Inc. and GVN Services (together GVN). Amortization expense for 2009...

  • Page 79
    ...: Year Ended December 31, 2011 December 31, 2010 New Borrowings December 31, 2011 ($ in thousands) Rural Utilities Service Loan Contracts Senior Unsecured Debt Industrial Development Revenue Bonds TOTAL LONG-TERM DEBT Less: Debt Discount Less: Current Portion Payments Interest Rate* at December...

  • Page 80
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Additional information regarding our Senior Unsecured Debt at December 31, 2011 and 2010 is as follows: 2011 Principal ($ in thousands) Senior Notes: Due 5/15/2011 Due 10/24/2011 Due 12/31/2012 Due 1/15/...

  • Page 81
    ...not be used to fund dividend payments. We also have a $100.0 million unsecured letter of credit facility. The terms of the letter of credit facility are set forth in a Credit Agreement, dated as of September 8, 2010, among the Company, the Lenders party thereto, and Deutsche Bank AG, New York Branch...

  • Page 82
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 ...

  • Page 83
    ... in connection with the Bangor, Maine legal matter. (10) 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 stock from 600,000,000 to 1,750,000,000. The...

  • Page 84
    ... awards to employees in the form of our common stock. The number of shares issued as restricted stock awards during 2011, 2010 and 2009 were 1,734,000, 3,264,000 and 1,119,000, respectively. None of the restricted stock awards may be sold, assigned, pledged or otherwise transferred, voluntarily or...

  • Page 85
    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 3,713,000 (114,000) (48,000) 3,551,000 (2,044,000...

  • Page 86
    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: Weighted Average Number of Grant Date Aggregate Shares Fair Value...

  • Page 87
    ... at the same rate and at the same time as we pay dividends on shares of our common stock. Dividends on stock units are paid in the form of additional stock units. The number of shares of common stock authorized for issuance under the Directors' Equity Plan is 2,540,761, which includes 540,761...

  • Page 88
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (12) Income Taxes: The following is a reconciliation of the provision for income taxes computed at federal statutory rates to the effective rates for the years ended December 31, 2011, 2010 and 2009: ...

  • Page 89
    ... of Frontier: Current benefit arising from stock options exercised and restricted stock Deferred income taxes (benefits) arising from the recognition of additional pension/OPEB liability Total income taxes charged (credited) to shareholders' equity of Frontier Total income taxes $ 2011 2010 2009...

  • Page 90
    ...forward for state filing jurisdictions. We also maintain uncertain tax positions in various state jurisdictions. The following table sets forth the changes in the Company's balance of unrecognized tax benefits for the years ended December 31, 2011 and 2010: ($ in thousands) Unrecognized tax benefits...

  • Page 91
    ... 31, 2011, 2010 and 2009 is as follows: ($ and shares in thousands, except per-share amounts) 2011 Net income used for basic and diluted earnings per common share: Net income attributable to common shareholders of Frontier Less: Dividends paid on unvested restricted stock awards Total basic and...

  • Page 92
    ...654) 2009 Tax Expense/ (Benefit) $ (10,149) 6,862 (3,287) Net-of-Tax Amount $ (25,610) 17,317 (74) $ (8,367) $ $ (15) Segment Information: We operate in one reportable segment, Frontier. Frontier provides both regulated and unregulated voice, data and video services to residential, business and...

  • 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
    ... as expected pension benefit payment streams. When analyzing anticipated benefit payments, management considers both the absolute amount of the payments as well as the timing of such payments. In 2011, 2010 and 2009, our expected long-term rate of return on plan assets was 8.00%. For 2012, we will...

  • Page 95
    ...cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of prior service cost/(credit) Amortization of unrecognized loss Net periodic benefit cost Special termination charge Total periodic benefit cost Expected 2012 2011 2010 2009 $ $ (199) 31,147 $ 38,879...

  • Page 96
    ...-end obligations were as follows: 2011 4.50% 5.25% 8.00% 2.50% 2010 5.25% 5.75% 8.00% 3.00% 2009 5.75% 6.50% 8.00% 3.00% 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...

  • Page 97
    ...,369 2011 2010 $ $ $ $ $ $ $ $ $ $ $ $ $ $ ($ in thousands) Expected 2012 2011 2010 2009 Components of net periodic postretirement benefit cost Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of prior service cost/(credit) Amortization...

  • Page 98
    ... as follows: 2011 2010 2009 Discount rate - used at year end to value obligation 4.50% - 4.75% 5.25% 5.75% Discount rate - used to compute annual cost 5.25% 5.75% 6.50% Expected long-term rate of return on plan assets 6.00% - 3.00% 6.00% 6.00% The OPEB plan's expected benefit payments over the next...

  • Page 99
    ... for certain former employees of the Acquired Business under three separate plans. (18) 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 a liability in an orderly transaction between market participants...

  • Page 100
    ... Government 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 Receivable for Plan Assets of Acquired Business...

  • Page 101
    ... Government 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 Receivable for Plan Assets of Acquired Business...

  • Page 102
    ... 100 Comm Drive, LLC 100 CTE Drive, LLC (d) (d) (c) 5,851 6,505 4,805 6430 Oakbrook Parkway LLC 8001 West Jefferson, LLC (d) Total Interest in Limited Partnerships (d) 21,005 25,805 $ 104,033 (a) The fund's investment objective is to generate long-term capital appreciation with relatively low...

  • Page 103
    ...The fair value of our long-term debt is estimated based upon quoted market prices at the reporting date for those financial instruments. (19) Commitments and Contingencies: We anticipate total capital expenditures for business operations of approximately $725 million to $775 million for 2012 related...

  • Page 104
    ... on traffic they carry for us subject to minimum monthly fees. At December 31, 2011, the estimated future payments for obligations under our noncancelable long distance contracts and service agreements are as follows: ($ in thousands) Year 2012 2013 2014 2015 2016 Thereafter Total Amount 27,488 24...

  • Page 105
    ... agent and make payments on our behalf, CNA requires that we establish a letter of credit in their favor. CNA could potentially draw against this letter of credit if we failed to reimburse CNA in accordance with the terms of our agreement. The value of the letter of credit is reviewed annually and...