Frontier Communications 2012 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 2012 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 106

  • 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
  • 106

to reduce our cash generated from operations. In addition, although we believe, based on information available
to us, that the financial institutions syndicated under our revolving credit facility would be able to fulfill their
commitments to us, this could change in the future. As of December 31, 2012, we had $560.5 million and
$257.9 million of debt maturing in 2013 and 2014, respectively, although $502.7 million of the 2013 maturing
debt was retired on January 15, 2013 with cash on hand.
In addition, the 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 Mbps by the end of 2013 and 4 Mbps by the end of 2015.
As of December 31, 2012 and 2011, we had expanded our broadband availability to the households
throughout the Company’s territories as follows:
(In excess of)
Frontier
Legacy
Acquired
Territories
Total
Company
Total
Company
2012 2011
1 Mbps . . . ................................................ 92% 86% 88% 83%
3 Mbps . . . ................................................ 80% 84% 83% 76%
4 Mbps . . . ................................................ 76% 78% 77% 66%
6 Mbps . . . ................................................ 66% 77% 74% 56%
12 Mbps . . ................................................ 42% 54% 51% NA
20 Mbps . . ................................................ 38% 41% 40% 28%
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) 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. 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.
In the third quarter of 2011, the Company contributed four administrative properties appraised at $58.1
million to its qualified defined benefit pension plan. The Company is leasing back the properties from its
pension plan for 15 years at a combined aggregate annual rent of $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.
Cash Flows provided by Operating Activities
Cash flows provided by operating activities declined $20.2 million, or 1%, in 2012 as compared to 2011.
The decrease was primarily the result of large cash settlements of accounts payable due to the timing of vendor
payments during the first quarter of 2012. Our accounts payable balances at December 31, 2011 were unusually
high due to our systems conversion and broadband build activities in the second half of 2011.
We paid $4.7 million in net cash taxes during 2012, while cash refunds (net of cash taxes paid) for taxes
of $33.1 million were received in 2011, and cash paid for taxes was $19.9 million in 2010. Our 2012 cash taxes
reflect the continued impact of bonus depreciation under the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010. We expect that in 2013 our cash taxes will be approximately
$125 million to $150 million.
In connection with the Transaction, the Company undertook a variety of activities to integrate systems and
implement other initiatives. As a result of the Transaction, the Company incurred $81.7 million of costs related
to integration activities during 2012, as compared to $143.1 million and $137.1 million of acquisition and
integration costs in 2011 and 2010, respectively. All integration activities were completed as of the end of
2012.
32
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES