Frontier Communications 2011 Annual Report Download - page 22

Download and view the complete annual report

Please find page 22 of the 2011 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 105

  • 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
  • 105

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
19
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 third party from acquiring control of us during this period in a transaction that the holders of our securities might
consider favorable.
We may complete a future significant strategic transaction that may not achieve intended results or could
increase the number of our outstanding shares or amount of outstanding debt or result in a change of control.
We continuously evaluate and may in the future enter into additional strategic transactions. Any such transaction
could happen at any time, could be material to our business and could take any number of forms, including, for example, an
acquisition, merger or a sale of all or substantially all of our assets.
Evaluating potential transactions and integrating completed ones may divert the attention of our management from
ordinary operating matters. The success of these potential transactions will depend, in part, on our ability to realize the
anticipated growth opportunities and cost synergies through the successful integration of the businesses we acquire with our
existing business. Even if we are successful in integrating acquired businesses, we cannot assure you that these integrations
will result in the realization of the full benefit of any anticipated growth opportunities or cost synergies or that these
benefits will be realized within the expected time frames. In addition, acquired businesses may have unanticipated
liabilities or contingencies.
If we complete an acquisition, investment or other strategic transaction, we may require additional financing that
could result in an increase in the number of our outstanding shares or the aggregate amount of our debt, although there are
restrictions on our ability to issue additional shares of stock for these purposes until July 2012. See “We will be unable to
take certain actions until July 2012 because such actions could jeopardize the tax-free status of the Transaction, 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 our company or otherwise
materially and adversely affect our business.
Risks Related to Liquidity, Financial Resources and Capitalization
If the lingering impact of the ongoing economic uncertainty continues through 2012, it may have an impact on
our business and financial condition.
Disruption and uncertainty in the capital markets, and tightening of credit availability may continue through 2012.
This economic scenario may affect the financial health of our customers, vendors and partners, which in turn may
negatively affect our revenues, operating expenses and cash flows. In addition, we have a $750.0 million revolving credit
facility. Although we believe, based on currently available information, that the financial institutions with commitments
under the revolving credit facility will be able to fulfill their commitments to us, as applicable, we cannot be certain of this
in the future.
Volatility in asset values related to Frontier’s pension plan may require us to make contributions to fund
pension plan liabilities.
Frontier’s pension plan assets have decreased from $1,290.3 million at December 31, 2010, to $1,258.0 million at
December 31, 2011, a decrease of $32.3 million, or 3%. This decrease is a result of ongoing benefit payments of $128.9
million offset by $19.9 million of positive investment returns and contributions of cash and real property of $76.7 million
during 2011. The Company expects to make contributions of approximately $60 million in 2012. Volatility in our asset
values or returns may require us to make additional contributions in future years.
Substantial debt and debt service obligations may adversely affect us.
We have a significant amount of indebtedness, which amounted to approximately $8.3 billion at December 31,
2011. We have access to a $750.0 million revolving credit facility and may also obtain additional long-term debt and
working capital lines of credit to meet future financing needs, subject to certain restrictions under the terms of our existing
indebtedness. Despite the substantial indebtedness that we have, we are not prohibited from incurring additional
indebtedness.