Frontier Communications 2011 Annual Report Download - page 20

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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provide services. New labor agreements or the renewal of existing agreements may impose significant new costs on us,
which could adversely affect our financial condition and results of operations in the future.
If we are unable to hire or retain key personnel, we may be unable to operate our business successfully.
Our success will depend in part upon the continued services of our management. We cannot guarantee that our
key personnel will not leave or compete with us. The loss, incapacity or unavailability for any reason of key members of
our management team could have a material impact on our business. In addition, our financial results and our ability to
compete will suffer should we become unable to attract, integrate or retain other qualified personnel in the future.
Our efforts to integrate our legacy business and the Acquired Business may not be successful.
The acquisition of the Acquired Business was the largest and most significant acquisition we have undertaken.
Our management has been and will continue to be required to devote a significant amount of time and attention to the
process of integrating the operations of our legacy business and the Acquired Business, which may decrease the time
management 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 and systems to manage the
Acquired Business, if not managed successfully, may result in interruptions in our activities, a decrease in the quality of our
services, a deterioration in our employee and customer relationships, increased costs of integration and harm to our
reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.
We may not realize the growth opportunities that we anticipated from the Transaction.
The benefits that we expect to achieve as a result of the acquisition of the Acquired Business will depend, in part,
on our ability to realize anticipated growth opportunities. Our success in realizing these growth opportunities and the timing
of this realization, depends on the successful integration of our legacy business and operations and the Acquired Business
and operations. Even if we are able to complete the integration of the businesses and operations successfully, this
integration may not result in the realization of the full benefits of the growth opportunities that we currently expect from
this integration. Moreover, we have incurred substantial expenses in connection with the integration of our legacy business
and the Acquired Business. Through December 31, 2011, we have incurred $440.3 million in integration expenses and
capital expenditures, and we anticipate that additional expenditures will be incurred in 2012 to complete the integration.
Accordingly, the benefits from the Transaction may be partially offset by costs incurred or delays in integrating the
businesses.
Regulatory authorities, in connection with their approval of the acquisition, imposed on us certain conditions
relating to our capital expenditures and business operations which may adversely affect our financial performance.
In connection with granting their approvals of the Transaction, the FCC and certain state regulatory commissions
specified certain capital expenditure and operating requirements for the acquired Territories for specified periods of time post-
closing. These requirements focus primarily on certain capital investment commitments to expand broadband availability to at
least 85% of the households throughout the acquired Territories with minimum speeds of 3 megabits per second (Mbps) by the
end of 2013 and 4 Mbps by the end of 2015. To satisfy all or part of certain capital investment commitments to three state
regulatory commissions, we placed an aggregate amount of $115.0 million in cash into escrow accounts and obtained a letter
of credit for $190.0 million in 2010. Another $72.4 million of cash in an escrow account (with a cash balance of $62.9 million
and an associated liability of $14.3 million as of December 31, 2011) was acquired in connection with the Transaction to be
used for service quality initiatives in the state of West Virginia. As of December 31, 2011, we had a restricted cash balance in
these escrow accounts in the aggregate amount of $144.7 million. As of such date, $43.0 million had been released from
escrow. As of December 31, 2011, the letter of credit has been reduced to $100.0 million.
In addition, in certain states, we are subject to operating restrictions such as rate caps (including maintenance of the
rates on residential and business products and the 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 acquisition), continuation of
product bundle offerings that we offered before the Transaction, waiver of certain 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 on certain of our subsidiaries in that one state). In one other state, our subsidiaries are subject to restrictions on the
amount of dividends that can be paid to the parent company for a period ending on June 30, 2014. We are also required to