Frontier Communications 2013 Annual Report Download

Download and view the complete annual report

Please find the complete 2013 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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-11001
FRONTIER COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
06-0619596
(I.R.S. Employer Identification No.)
3 High Ridge Park
Stamford, Connecticut
(Address of principal executive offices)
06905
(Zip Code)
(203) 614-5600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange
on which registered
Common Stock, par value $.25 per share
Series A Participating Preferred Stock Purchase Rights
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
The aggregate market value of common stock held by non-affiliates of the registrant on June 28, 2013 was $4,025,490,000
based on the closing price of $4.05 per share on such date.
The number of shares outstanding of the registrant’s common stock as of February 14, 2014 was 999,462,000.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Company’s 2014 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Form 10-K.

Table of contents

  • Page 1
    ... FILE NUMBER 001-11001 FRONTIER COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 06-0619596 (I.R.S. Employer Identification No.) 06905 (Zip Code) (203) 614-5600 (Address of principal...

  • Page 2
    ... 14. Item 15. Business...Risk Factors ...Unresolved Staff Comments ...Properties...Legal Proceedings...Mine Safety Disclosures ...PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion...

  • Page 3
    ..., service and customer satisfaction. We offer a variety of voice, data, and television (TV) services and products, some that are available on a standalone basis, and others that are available as bundled or packaged solutions. We believe that our local engagement structure, 100% U.S.-based workforce...

  • Page 4
    ...broadband services - computer security and premium technical support (i.e., Frontier Secure) - commercial Voice over Internet Protocol (VoIP) service • local and long distance voice services - local voice services - enhanced services (e.g., voicemail, call waiting) - long distance network services...

  • Page 5
    ...the sale of voice, data and video services as standalone offerings and bundled packages and the use of promotions and incentives to drive market share through a variety of channels. We believe these marketing strategies yield increased revenue per customer, strong customer relationships and improved...

  • Page 6
    ... or the Frontier Secure brand. We offer wireless broadband services (using unlicensed WiFi spectrum) in select markets utilizing networks that we own or operate. Long-term contracts are generally billed in advance on an annual or semiannual basis. End-user subscribers are generally billed in advance...

  • Page 7
    ..., we offer fiber optic-based video services on a limited basis in the states of Indiana, Oregon and Washington pursuant to franchises, permits and similar authorizations issued by local franchising authorities. Customer Premise Equipment. We offer our small, medium and enterprise business customers...

  • Page 8
    ... 31, 2013, approximately 76% of our residential broadband customers, (excluding multiple dwelling units and wireless high speed Internet), subscribe to a bundle of services. Throughout our territories, we offer satellite video services through DISH and, in addition, we offer fiber optic-based video...

  • Page 9
    ... Includes Tennessee, Nevada, Iowa, Nebraska, Alabama, Utah, Georgia, Montana, New Mexico, Mississippi and Florida. Network Architecture and Technology Our local exchange carrier networks consist of host central office and remote sites, primarily equipped with digital and Internet Protocol switches...

  • Page 10
    ... packages of value-added services to our voice customers. Our bundled services include broadband, unlimited long distance calling, enhanced voice features and video offerings. We are also focused on increasing sales of existing products, including unlimited long distance minutes, bundles of long...

  • Page 11
    ... CORPORATION AND SUBSIDIARIES We believe that offering multiple products and services to our customers, providing a single bill, on-line payment capability, providing superior customer service, and being active in our local communities will develop customer loyalty which should help us generate new...

  • Page 12
    ... 30, 2014. We are also required to report certain financial information. At the federal level and in a number of the states in which we operate, we are subject to price cap or incentive regulation plans under which prices for regulated services are capped. Some of these plans have limited terms and...

  • Page 13
    ...changes on our results of operations. Certain state regulatory commissions regulate some of the rates ILECs charge for intrastate services, including rates for intrastate access services paid by providers of intrastate long distance services. The Order, however, removes much of the states' authority...

  • Page 14
    ... "Open Internet" policies. The future state of these regulations and their effect on us is unknown. Video programming Federal, state and local governments extensively regulate the video services industry. Our fiber optic-based video service is subject to, among other things, subscriber privacy...

  • Page 15
    ... the Communications Workers of America. Following the close of the AT&T Transaction, we will operate in the State of Connecticut, and in 28 states overall, and have approximately 16,350 employees, all located in the United States. On December 16, 2013, we signed a commitment letter for a bridge loan...

  • Page 16
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES We make available, free of charge on our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act...

  • Page 17
    ... video, broadband internet and switched long distance services provided to designated customers located in Connecticut. However, the contributed assets may not be sufficient to operate all aspects of the acquired business and the Company may have to use assets or resources from our existing business...

  • Page 18
    ... have experienced declining voice customers, switched access minutes of use, long distance revenues, federal and state subsidies and related revenues because of economic conditions, increasing competition, changing consumer behavior (such as wireless displacement of wireline use, e-mail use, instant...

  • Page 19
    ... or discontinue payment for our services or seek more competitive pricing from other service providers, or we may be required to offer increased discounts in order to retain our customers. Disruption in our networks, infrastructure and information technology may cause us to lose customers and incur...

  • Page 20
    ...through increased usage of video or peerto-peer file sharing applications. Disruptions may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers and/or incur additional expenses, and thereby adversely affect our business, revenues and cash...

  • Page 21
    ...including operating costs, capital expenditures and dividends that would otherwise improve our competitive position, results of operations or stock price; • requiring us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms, to meet payment obligations...

  • Page 22
    ... would reduce our stockholders' equity. Risks Related to Regulation Changes in federal or state regulations may reduce the switched access charge revenues we receive. A significant portion of Frontier's total revenues ($234.5 million, or 5%, in 2013 and $282.3 million, or 6%, in 2012) are derived...

  • Page 23
    ... revenues may directly affect the Company's profitability and cash flows. The FCC's Order changed how federal subsidies will be calculated and disbursed, with these changes being phased-in beginning in 2012. These changes transition the Federal Universal Service High-Cost Fund, which supports voice...

  • Page 24
    .... We use encryption and authentication technology licensed from third parties to provide secure transmission of confidential information, including our business data and customer information. We also rely on employees in our network operations centers, data centers, call centers and retail stores to...

  • Page 25
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Despite security measures and business continuity plans, the Company's information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attack by hackers or breaches, employee error or malfeasance, ...

  • Page 26
    ...Jefferson Blvd., Fort Wayne, Indiana 46804 • 1500 MacCorkle Avenue, Charleston, West Virginia 25303 • 805 South Central Expressway, Allen, Texas 75013 • 1398 South Woodland Blvd., DeLand, Florida 32720 • 1800 41st Street, Everett, Washington 98203 • 180 South Clinton Avenue, Rochester, New...

  • Page 27
    ... a return of capital. The following table indicates the high and low intra-day sales prices per share, as reported by the NASDAQ Global Select Market, and sets forth dividends paid per share during the periods indicated. High 2013 Low Dividend High 2012 Low Dividend First Quarter...Second Quarter...

  • Page 28
    ... stock, the S&P 500 Stock Index and the S&P Telecommunication Services Index and that all dividends were reinvested. Base Period 12/08 INDEXED RETURNS Years Ending 12/10 12/11 12/12 Company / Index 12/09 12/13 Frontier Communications Corporation ...S&P 500 Index ...S&P Telecommunication Services...

  • Page 29
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased Average Price Paid per Share October 1, 2013 to October 31, 2013 Employee Transactions (1) ...November 1, 2013 to November 30, 2013 Employee Transactions (1) ......

  • Page 30
    ... audited historical consolidated financial statements of Frontier not included in this Form 10-K. 2013 ($ in thousands, except per share amounts) 2012 Year Ended December 31,(1) 2011 2010 2009 Revenue ...Income from continuing operations(2)(3)(4)(5) ...Net income attributable to common shareholders...

  • Page 31
    ... carriers that could require us to implement new pricing, marketing strategies or new product or service offerings and the risk that we will not respond on a timely or profitable basis; • Reductions in the number of our voice customers that we cannot offset with increases in broadband subscribers...

  • Page 32
    ... revenues and required levels of capital expenditures related to new construction of residences and businesses; • The effects of technological changes and competition on our capital expenditures, products and service offerings, including the lack of assurance that our network improvements in speed...

  • Page 33
    ..., fund capital expenditures, make required debt payments, pay taxes, pay dividends to our stockholders, and support our short-term and long-term operating strategies for the next twelve months. However, a number of factors, including but not limited to, losses of customers, pricing pressure from...

  • Page 34
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Cash Flows used by Investing Activities Capital Expenditures In 2013, 2012 and 2011, our capital expenditures were $634.7 million, $802.5 million and $824.8 million (including $54.1 million and $76.5 million, respectively, of integration-related ...

  • Page 35
    ... tax), which was recognized in the second quarter of 2013. Pursuant to the 2012 Debt Tender Offer, the Company accepted for purchase $400 million aggregate principal amount of 2014 Notes, tendered for total consideration of $446.0 million, and $49.5 million aggregate principal amount of April 2015...

  • Page 36
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES term loan maturing October 24, 2011, its $143 million CoBank term loan maturing December 31, 2012, and its $130 million CoBank term loan maturing December 31, 2013) and the remaining proceeds were used for general corporate purposes. Revolving ...

  • Page 37
    ... 31, 2013 is as follows: Payments due by period 2015 and 2017 and 2016 2018 ($ in thousands) Total 2014 Thereafter Long-term debt obligations, excluding interest ...Interest on long-term debt ...Operating lease obligations ...Capital lease obligations...Financing lease obligations ...Purchase...

  • Page 38
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES In our normal course of business we have obligations under certain non-cancelable arrangements for services. During 2012, we entered into a "take or pay" arrangement for the purchase of future long distance and carrier services. Our remaining ...

  • Page 39
    ... Officer, Chief Financial Officer, President and Chief Operating Officer) review our results on a daily, weekly and monthly basis. After making the change in our operating segments, we reviewed our goodwill impairment test by comparing the fair value for each reporting unit to its carrying value...

  • Page 40
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Goodwill by reporting unit (operating segment) at December 31, 2013 is as follows: ($ in thousands) 2013 Central ...East...National ...West ...Total Goodwill... $1,815,498 2,003,574 1,218,113 1,300,534 $6,337,719 Enterprise values for rural ILEC...

  • Page 41
    ...in equity securities and 5% to 15% in alternative investments. We review our asset allocation at least annually and make changes when considered appropriate. Our asset return assumption is made at the beginning of our fiscal year. In 2011, 2012 and 2013, our expected long-term rate of return on plan...

  • Page 42
    ... that provide certain employees with the option of receiving a lump sum payment upon retirement. We record these payments as a settlement only if, in the aggregate, they exceed the sum of the annual service and interest costs for the plan's net periodic pension benefit cost. During 2013, lump sum...

  • Page 43
    ... Operations REVENUE Revenue is generated primarily through the provision of voice services, data services, video services, network access, carrier services and other Internet services. Such revenues are generated through either a monthly recurring fee or a fee based on usage, and revenue recognition...

  • Page 44
    ...improvements in data services revenue, primarily driven by increased broadband subscribers, and continuing declines in voice services revenue. Average monthly business revenue per customer (business ARPC) increased $14.13, or 2%, to $653.26 during 2013 as compared to 2012. Total business revenue for...

  • Page 45
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES OTHER FINANCIAL AND OPERATING DATA As of % Increase As of % Increase As of December 31, 2013 (Decrease) December 31, 2012 (Decrease) December 31, 2011 Customers ...Broadband subscribers ...Video subscribers DISH and FiOS...DirecTV(1) ...Total ...

  • Page 46
    ... 31, 2013, the number of the Company's broadband subscribers increased by approximately 112,250, or 6%, since December 31, 2012. Data and Internet services also includes nonswitched access revenue from data transmission services to other carriers and high-volume business customers with dedicated...

  • Page 47
    ... from new customers, lower bad debt expenses that are charged against revenue and higher wireless revenue, partially offset by the reduction in customers for FiOS video service and lower directory services revenue. Switched Access and Subsidy Switched access and subsidy revenue for 2013 decreased...

  • Page 48
    ...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...

  • Page 49
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES OTHER OPERATING EXPENSES 2013 $ Increase % Increase (Decrease) (Decrease) Amount $(63,349) (30,136) $(93,485) (5%) (3%) (4%) $1,207,797 1,026,756 $2,234,553 ($ in thousands) Wage and benefit expenses ...All other operating expenses... Amount 996,...

  • Page 50
    ... for 2014 for our current business operations. PENSION SETTLEMENT COSTS ($ in thousands) 2013 2012 2011 Pension settlement costs ... $44,163 $- $- Our pension plan contains provisions that provide certain employees with the option of receiving a lump sum payment upon retirement. We record these...

  • Page 51
    ... COMMUNICATIONS CORPORATION AND SUBSIDIARIES GAIN ON SALE OF MOHAVE PARTNERSHIP INTEREST ($ in thousands) Gain on sale of Mohave partnership interest ...2013 $14,601 2012 $- 2011 $- On April 1, 2013, the Company sold its 331⁄3% interest in the Mohave partnership, in which Frontier was the General...

  • Page 52
    ... continued impact of bonus depreciation in accordance with the American Taxpayer Relief Act of 2012. We received refunds (net of cash taxes paid) of $33.1 million in cash taxes during 2011. In 2011, we received refunds of $53.9 million generated in part by the 2009 retroactive change in accounting...

  • Page 53
    ... maturity applicable to our obligations since December 31, 2012. Equity Price Exposure Our exposure to market risks for changes in equity security prices as of December 31, 2013 is limited to our pension plan assets. We have no other security investments of any material amount. The Company's pension...

  • Page 54
    ... Framework is expected to help organizations design and implement internal control in light of many changes in business and operating environments since the issuance of the original Framework, broaden the application of internal control in addressing operations and reporting objectives, and clarify...

  • Page 55
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES PART III Item 10. Directors, Executive Officers and Corporate Governance Certain of the information required by this Item is incorporated by reference from our definitive proxy statement for the 2014 Annual Meeting of Stockholders to be filed with...

  • Page 56
    ... Operations from May 2012 to January 2013, Executive Vice President, Human Resources and Call Center Sales & Service from February 2008 to May 2012 and Senior Vice President, Human Resources from February 2006 to February 2008. Prior to joining Frontier, she was Group Vice President, Headquarters...

  • Page 57
    ... to the Securities Exchange Act of 1934 by the Company, file number 001-11001, unless otherwise indicated. Exhibit No. Description 2.1 - Stock Purchase Agreement, dated as of December 16, 2013, by and between AT&T Inc. and the Company (filed as Exhibit 2.1 to the Company's Current Report on Form...

  • Page 58
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Exhibit No. Description 4.5 - Seventh Supplemental ... Report on Form 8-K filed on October 1, 2012).* 4.19 - Fifth Supplemental Indenture to the April 2009 Indenture, dated as of April 10, 2013, between the Company and The Bank of New York Mellon...

  • Page 59
    ... Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2004).* 10.9 - 1996 Equity Incentive Plan, as amended and restated December 29, 2008 (filed as Exhibit 10.11 to the 2008 10-K).* 10.10 - 2013 Frontier Bonus Plan (filed as Appendix A to the Company's Proxy Statement dated...

  • Page 60
    ...6, 2009).* 10.13 - 2013 Equity Incentive Plan (filed as Appendix B to the 2013 Proxy Statement).* 10.14 - Offer of Employment Letter, dated January 20, 2010, between the Company and Kathleen Abernathy (filed as Exhibit 10.35 to the Spinco Form 10).* 10.15 - Amendment, dated May 31, 2012, to Offer of...

  • Page 61
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Exhibit No. Description 10.30 - Stock Purchase Agreement, dated as of July 3, 2007, between the Company and Country Road Communications LLC (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 9, 2007).* 12.1 - ...

  • Page 62
    ... duly authorized. FRONTIER COMMUNICATIONS CORPORATION (Registrant) February 27, 2014 By: /S/ MARY AGNES WILDEROTTER Mary Agnes Wilderotter Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 63
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements Item Page Management's Report on Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2013 and 2012 ......

  • Page 64
    ...Frontier Communications Corporation: The management of Frontier Communications Corporation and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting...control over financial reporting was effective as of December 31, 2013. Our independent ...

  • Page 65
    ... position of Frontier Communications Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles...

  • Page 66
    ... sheets of Frontier Communications Corporation and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the years in the three-year period ended December 31, 2013, and our report dated...

  • Page 67
    ...Other current liabilities ...Total current liabilities ...Deferred income taxes ...Pension and other postretirement benefits ...Other liabilities ...Long-term debt ...Equity: Shareholders' equity of Frontier: Common stock, $0.25 par value (1,750,000,000 authorized shares, 999,462,000 and 998,410,000...

  • Page 68
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 ($ in thousands, except for per-share amounts) 2013 2012 2011 Revenue ...Operating expenses: Network access expenses ...Other operating expenses ......

  • Page 69
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 ($ in thousands) 2013 2012 2011 Net income ...$115,478 $153,314 $ 157,608 Pension settlement costs, net of tax (see Notes 14 and 17) ...27...

  • Page 70
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 ($ and shares in thousands) Shareholders' Equity of Frontier Accumulated Additional Other Paid-In Retained Comprehensive Capital Earnings Loss Common Stock ...

  • Page 71
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 ($ in thousands) 2013 2012 2011 Cash flows provided by (used in) operating activities: Net income ...Adjustments to reconcile net income to net cash ...

  • Page 72
    ... are provided or when products are delivered to customers. Revenue that is billed in advance includes: monthly recurring network access services (including data services), special access services and monthly recurring voice, video and related charges. The unearned portion of these fees is initially...

  • Page 73
    ... our operating segments effective with the first quarter of 2013, we reassigned goodwill to our reporting units using a relative fair value allocation approach. The Company amortizes finite-lived intangible assets over their estimated useful lives and reviews such intangible assets at least annually...

  • Page 74
    ... Framework is expected to help organizations design and implement internal control in light of many changes in business and operating environments since the issuance of the original Framework, broaden the application of internal control in addressing operations and reporting objectives, and clarify...

  • Page 75
    ... of the AT&T Transaction, Frontier will operate AT&T's wireline business and fiber optic network that provides services to residential, commercial and wholesale customers in Connecticut. The Company will also acquire AT&T's U-verse® video and satellite TV customers in Connecticut. We incurred...

  • Page 76
    ... at December 31, 2013 and 2012 are as follows: ($ in thousands) Estimated Useful Lives 2013 2012 Land ...Buildings and leasehold improvements ...General support ...Central office/electronic circuit equipment ...Poles ...Cable and wire...Conduit...Other ...Construction work in progress ...Property...

  • Page 77
    ..., 2013 Payments and New Retirements Borrowings Interest Rate at December 31, 2013* ($ in thousands) December 31, 2012 December 31, 2013 Senior Unsecured Debt ...Industrial Development Revenue Bonds ...Rural Utilities Service Loan Contracts . TOTAL LONG-TERM DEBT ...Less: Debt (Discount)/Premium...

  • Page 78
    ... (Frontier's $200 million Rural Telephone Financing Cooperative term loan maturing October 24, 2011, its $143 million CoBank term loan maturing December 31, 2012, and its $130 million CoBank term loan maturing December 31, 2013) and the remaining proceeds were used for general corporate purposes...

  • Page 79
    ...'s debt rating. The Revolving Credit Facility is available for general corporate purposes but may not be used to fund dividend payments. The maximum permitted leverage ratio is 4.5 times. On September 8, 2010, the Company entered into a letter of credit facility, the terms of which are set forth...

  • Page 80
    ... 2012 Debt Tender Offer, the Company accepted for purchase $400 million aggregate principal amount of 2014 Notes, tendered for total consideration of $446.0 million, and $49.5 million aggregate principal amount of April 2015 Notes, tendered for total consideration of $54.0 million. The Company used...

  • Page 81
    ... in thousands) Principal Payments 2014 ...2015 ...2016 ...2017 ...2018 ...Other Obligations $257,916 $259,840 $345,466 $607,375 $583,273 During 2013, the Company contributed four real estate properties to its qualified defined benefit pension plan. The pension plan obtained independent appraisals...

  • Page 82
    ...for grant under the 2013 Equity Incentive Plan (the 2013 EIP and together with the 1996 EIP, the 2000 EIP and the 2009 EIP, the EIPs) and the Non-Employee Directors' Equity Incentive Plan (the Directors' Equity Plan, and together with the Deferred Fee Plan, the Director Plans). Our general policy is...

  • Page 83
    ...-2015 Measurement Period and the second year of the 2012-2014 Measurement Period. The performance share awards approved in February 2013 were granted upon stockholder approval of the Company's 2013 EIP at the Annual Meeting of Stockholders held on May 8, 2013. The number of shares of common stock...

  • Page 84
    ... stock as of December 31, 2013 and changes with regard to restricted stock under the 2009 EIP and the 2013 EIP: Weighted Average Grant Date Fair Value Number of Shares Aggregate Fair Value Balance at January 1, 2011 ...Restricted stock granted ...Restricted stock vested ...Restricted stock...

  • Page 85
    ... were no stock options granted during 2013, 2012 and 2011. There is no remaining unrecognized compensation cost associated with unvested stock options at December 31, 2013. Non-Employee Directors' Compensation Plans Prior to October 1, 2010, non-employee directors received stock options upon joining...

  • Page 86
    ... as we pay dividends on shares of our common stock. Dividends on stock units are paid in the form of additional stock units. The number of shares of common stock authorized for issuance under the Directors' Equity Plan is 2,540,761, which includes 540,761 shares that were available for grant under...

  • Page 87
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (12) Income Taxes: The following is a reconciliation of the provision for income taxes computed at federal statutory rates to the effective rates for the years ended December 31, 2013, 2012 and 2011: 2013...

  • Page 88
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The components of the net deferred income tax liability (asset) at December 31 are as follows: ($ in thousands) 2013 2012 Deferred income tax liabilities: Property, plant and equipment basis differences ...

  • Page 89
    ... as the taxes charged or credited to shareholders' equity of Frontier, includes amounts both payable currently and deferred for payment in future periods as indicated below: ($ in thousands) 2013 2012 2011 Income taxes charged to the consolidated statement of operations: Current: Federal...State...

  • Page 90
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The amounts above exclude $0.6 million and $2.1 million of accrued interest as of December 31, 2013 and 2012, respectively, that we have recorded and would be payable should the Company's tax positions ...

  • Page 91
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (14) Comprehensive Income: Comprehensive income consists of net income and other gains and losses affecting shareholders' investment and pension/postretirement benefit (OPEB) liabilities that, under U.S. ...

  • Page 92
    ... benefit cost (see Note 17-Retirement Plans for additional details). (15) Segment Information: We operate in one reportable segment. Frontier provides both regulated and unregulated voice, data and video services to residential, business and wholesale customers and is typically the incumbent voice...

  • Page 93
    ...significant number of our former and current employees and other postretirement benefit plans that provide medical, dental, life insurance and other benefits for covered retired employees and their beneficiaries and covered dependents. The benefits are based on years of service and final average pay...

  • Page 94
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements mortality. We review these assumptions for changes annually with our independent actuaries. We consider our discount rate and expected long-term rate of return on plan assets to be our most critical ...

  • Page 95
    ... employees with the option of receiving lump sum payment upon retirement. The Company's accounting policy is to record these payments as a settlement only if, in the aggregate, they exceed the sum of the annual service and interest costs for the plan's net periodic pension benefit cost. During 2013...

  • Page 96
    ..., 2013, 2012 and 2011, respectively, as the costs relate to our engineering and plant construction activities. Based on current assumptions and plan asset values, we estimate that our 2014 pension and OPEB expenses will be approximately $65 million to $85 million for our current business operations...

  • Page 97
    ... pension costs and valuation of the year-end obligations were as follows: 2013 2012 2011 Discount rate-used at year end to value obligation...Discount rate-used to compute annual cost ...Expected long-term rate of return on plan assets ...Rate of increase in compensation levels ...Postretirement...

  • Page 98
    ... follows: 2013 2012 2011 Discount rate-used at year end to value obligation ...4.90%-5.20% 4.00%-4.20% Discount rate-used to compute annual cost ...4.00%-4.20% 4.50%-4.75% Expected long-term rate of return on plan assets ...3.00%-4.00% 3.00%-4.00% The OPEB plan's expected benefit payments over the...

  • Page 99
    ... employee retirement savings plans under section 401(k) of the Internal Revenue Code. The plans cover substantially all full-time employees. Under certain plans, we provide matching contributions. Employer contributions were $20.6 million, $23.0 million and $22.2 million for 2013, 2012 and 2011...

  • Page 100
    ... Limited Liability Corporations ...Insurance Contracts ...Other...Total investments at fair value ...Interest and Dividend Receivable ...Due from Broker for Securities Sold ...Receivable Associated with Insurance Contract ...Due to Broker for Securities Purchased ...Total Plan Assets, at Fair Value...

  • Page 101
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The table below sets forth a summary of changes in the fair value of the Plan's Level 3 assets for the years ended December 31, 2013 and 2012: 2013 Interest in Limited Partnerships and Limited Liability ...

  • Page 102
    ... Oakbrook Parkway, LLC(d) ...8001 West Jefferson, LLC(d) ...1500 MacCorkle Ave SE, LLC(d) ...400 S. Pike Road West, LLC(d) ...601 N US 131, LLC(d) ...9260 E. Stockton Blvd., LLC(d)...Total Interest in Limited Partnerships and Limited Liability Corporations ...(a) $ 33,444 Quarterly 65 days NA...

  • Page 103
    ...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 our current business operations of approximately $575 million to $625 million for 2014...

  • Page 104
    ...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...

  • Page 105
    ... 2012 and 2011 was $84.4 million, $79.3 million and $70.2 million, respectively. In our normal course of business, we have obligations under certain non-cancelable arrangements for services. During 2012, we entered into a "take or pay" arrangement for the purchase of future long distance and carrier...

  • Page 106
    FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements At December 31, 2013, we have outstanding performance letters of credit as follows: ($ in thousands) Amount CNA Financial Corporation (CNA)...All other...Total ... $45,659 1,186 $46,845 CNA serves as ...