Frontier Communications 2012 Annual Report Download - page 19

capital expenditures in the respective states. The amounts held in these escrow accounts will not be released
until Frontier makes the required capital expenditures, and we may have to spend more than the amounts
currently held in these escrow accounts to achieve the capital expenditure and operating requirements.
In addition, in certain states, we are subject to operating restrictions such as rate caps (including
maintenance of existing rates on business and residential products and wholesale 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 Transaction), continuation of product bundle offerings that we offered
before the Transaction, and restrictions on how early termination fees are calculated, 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, may result in penalties, including in one state, 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 report certain financial information and adhere for a period of time to certain conditions regulating
competition and consumer protection.
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. 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 2013, it may have an
impact on our business and financial condition.
Disruption and uncertainty in the capital markets, and tightening of credit availability 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 that is
scheduled to terminate on January 1, 2014. Although we believe, based on information available to us, that the
financial institutions syndicated under the revolving credit facility would be able to fulfill their commitments to
us, this could change in the future.
Volatility in asset values related to Frontier’s pension plan and/or changes in pension plan assumptions
may require us to make contributions to fund pension plan liabilities.
Frontier’s pension plan assets have decreased from $1,258.0 million at December 31, 2011, to $1,253.6
million at December 31, 2012, a decrease of $4.4 million. This decrease is a result of benefit payments of
$172.6 million, primarily offset by $139.6 million of positive investment returns (including additional asset
transfers from Verizon of $13.0 million) and net contributions of cash of $28.6 million. The Company expects
18
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES