Frontier Communications 2012 Annual Report Download - page 49

Download and view the complete annual report

Please find page 49 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

OPERATING EXPENSES
NETWORK ACCESS EXPENSES
($ in thousands) Amount
$ Increase
(Decrease)
% Increase
(Decrease) Amount
$ Increase
(Decrease)
% Increase
(Decrease) Amount
2012 2011 2010
Network access . . . ................... $441,588 $(77,094) (15%) $518,682 $135,003 35% $383,679
Network access expenses for 2012 decreased $77.1 million, or 15%, to $441.6 million, as compared with
2011, primarily due to reduced data network and backbone costs, reflecting cost synergies realized in moving
traffic onto the Frontier legacy backbone, decreased long distance carriage costs in 2012, including a reduction
in costs for our originating traffic associated with the third quarter implementation of the Order and reduced
content costs related to fewer customers for FiOS video service. Network access expenses also included
promotional costs of $6.6 million and $13.9 million in 2012 and 2011, respectively, for various broadband and
video subscriber promotions.
Network access expenses for 2011 increased $135.0 million, or 35%, to $518.7 million, as compared with
2010. Network access expenses for 2011 increased $171.3 million as a result of the additional six months of
expenses in 2011 attributable to the Acquired Business. Network access expenses, excluding the additional six
months of expenses related to the Acquired Business, decreased $36.3 million, or 9%, to $347.4 million, as
compared with 2010, primarily due to reduced data network and backbone costs, reflecting synergies realized in
moving traffic onto the Frontier legacy backbone, and decreased long distance carriage costs in 2011.
OTHER OPERATING EXPENSES
($ in thousands) Amount
$ Increase
(Decrease)
% Increase
(Decrease) Amount
$ Increase
(Decrease)
% Increase
(Decrease) Amount
2012 2011 2010
Wage and benefit expenses . . . . . . $1,207,797 $ 78,780 7% $1,129,017 $325,294 40% $ 803,723
All other operating expenses. . . . . 1,026,756 (122,646) (11%) 1,149,402 341,988 42% 807,414
$2,234,553 $ (43,866) (2%) $2,278,419 $667,282 41% $1,611,137
Wage and benefit expenses
Wage and benefit expenses for 2012 increased $78.8 million, or 7%, to $1,207.8 million, (including $32.0
million and $15.7 million of severance costs for 2012 and 2011, respectively, related to 1,099 and 318
employees), as compared to 2011, primarily due to higher costs for compensation and certain other benefits
resulting from higher average employee headcount and incremental overtime costs in the third quarter of 2012
to repair the network for seasonally higher storm damage costs than in the prior year. Incremental overtime and
other costs incurred in 2012, resulting from seasonal storms, were approximately $10 million greater than 2011.
Since closing the Transaction, the Company has been reducing its reliance on outside contractors and vendors
by bringing work in-house to employees. While wages have increased, they have been more than offset by
reduced outside services. With the systems and network conversions completed, the Company is focusing on
simplifying its processes to reduce wage and non-wage costs. In the fourth quarter of 2012, the Company
recorded severance costs of $17.2 million related to the termination of 537 employees in connection with the
re-engineering initiative. We expect headcount to decline further in 2013.
Wage and benefit expenses for 2011 increased $325.3 million, or 40%, to $1,129.0 million as compared to
2010. Wage and benefit expenses for 2011 increased $364.2 million as a result of the additional six months of
expenses in 2011 attributable to the Acquired Business. Wage and benefit expenses, excluding the additional
six months of expenses related to the Acquired Business, decreased $38.9 million, or 5%, to $764.8 million, as
compared with 2010, primarily due to lower costs for compensation and certain other benefits, including
pension costs, as discussed below.
Pension and OPEB costs for the Company are included in our wage and benefit expenses. Pension and
OPEB costs for 2012, 2011 and 2010 were approximately $65.8 million, $48.1 million and $60.2 million,
respectively. Pension and OPEB costs include pension and OPEB expense of $81.6 million, $58.3 million and
48
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES