Frontier Communications 2012 Annual Report Download - page 101

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($ in thousands)
Carrying
Amount Fair Value
Carrying
Amount Fair Value
2012 2011
Long-term debt ..................................... $8,381,947 $9,091,416 $8,224,392 $7,958,873
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 $625 million to $675
million for 2013. Although we from time to time make short-term purchasing commitments to vendors with
respect to these expenditures, we generally do not enter into firm, written contracts for such activities.
In connection with the Transaction, the Federal Communications Commission (FCC) and certain state
regulatory commissions, in connection with granting their approvals of the Transaction, 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 download
speeds of 3 megabits per second (Mbps) by the end of 2013 and 4 Mbps by the end of 2015. As of December
31, 2012, we had expanded broadband availability in excess of 1 Mbps to 86% of the households throughout
the Acquired Territories, in excess of 3 Mbps to 84% of the households throughout the Acquired Territories,
and in excess of 4 Mbps to 78% of the households throughout the Acquired Territories.
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 $23.9
million and an associated liability of $0.2 million as of December 31, 2012 that is reflected in Other liabilities)
was acquired in connection with the Transaction to be used for service quality initiatives in the state of West
Virginia. As of December 31, 2012, $145.0 million had been released from escrow and the Company had a
restricted cash balance in these escrow accounts in the aggregate amount of $42.7 million, including interest
earned. As of December 31, 2012, the letter of credit had been reduced to $40.0 million. The aggregate amount
of these escrow accounts and the letter of credit will continue to decrease over time as Frontier makes the
required capital expenditures in the respective states.
We are party to various legal proceedings (including individual, class and putative class actions) arising in
the normal course of our business covering a wide range of matters and types of claims including, but not
limited to, general contracts, billing disputes, rights of access, taxes and surcharges, consumer protection,
trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other
carriers.
In accordance with U.S. GAAP, we accrue an expense for pending litigation when we determine that an
unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Legal defense costs
are expensed as incurred. None of our existing accruals for pending matters is material. We constantly monitor
our pending litigation for the purpose of adjusting our accruals and revising our disclosures accordingly, in
accordance with U.S. GAAP, when required. Litigation is, however, subject to uncertainty, and the outcome of
any particular matter is not predictable. We will vigorously defend our interests for pending litigation, and as of
this date, we believe that the ultimate resolution of all such matters, after considering insurance coverage or
other indemnities to which we are entitled, will not have a material adverse effect on our consolidated financial
position, results of operations, or our cash flows.
We conduct certain of our operations in leased premises and also lease certain equipment and other assets
pursuant to operating leases. The lease arrangements have terms ranging from 1 to 99 years and several contain
rent escalation clauses providing for increases in monthly rent at specific intervals. When rent escalation
clauses exist, we record annual rental expense based on the total expected rent payments on a straight-line basis
over the lease term. Certain leases also have renewal options. Renewal options that are reasonably assured are
F-40
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements