Frontier Communications 2013 Annual Report Download - page 38

Download and view the complete annual report

Please find page 38 of the 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

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 commitments under the arrangement are $145.5 million and $140.8 million for
the years ending December 31, 2014 and 2015, respectively. As of December 31, 2013, we expect to utilize the
services included within the arrangement and no liability for the “take or pay” provision has been recorded.
In addition, the FCC and certain state regulatory commissions, in connection with granting their approvals
of the 2010 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. We are required to
provide download speeds of 4 Mbps to at least 75%, 80% and 85% of the households throughout the Acquired
Territories by the end of 2013, 2014 and 2015, respectively. As of December 31, 2013, we had expanded
broadband availability in excess of 3 Mbps to 85.4% of the households throughout the Acquired Territories, and
in excess of 4 Mbps to 83.5% of the households throughout the Acquired Territories. Accordingly, we have met
our FCC requirement to provide 3 Mbps coverage to 85% of the households and 4 Mbps coverage to 75% of
the households in the Acquired Territories by the end of 2013. We have also met our FCC requirement to
provide 4 Mbps coverage to 80% of the households in the Acquired Territories by the end of 2014.
As of December 31, 2013 and 2012, we had expanded our broadband availability to the households
throughout the Company’s territories as follows:
(In excess of) 2013 2012
1 Mbps.................................................................. 90% 88%
3 Mbps.................................................................. 86% 83%
4 Mbps.................................................................. 83% 77%
6 Mbps.................................................................. 76% 74%
12 Mbps................................................................. 61% 51%
20 Mbps................................................................. 48% 40%
To satisfy all or part of certain capital investment commitments to three state regulatory commissions, we
placed a total of $115.0 million in cash into several escrow accounts and obtained a letter of credit for $190.0
million in 2010. Another $72.4 million of cash in an escrow account was acquired in connection with the 2010
Transaction to be used for service quality initiatives in the state of West Virginia. As of December 31, 2013,
$176.3 million had been released from the escrow accounts. As of December 31, 2013, the Company had a
restricted cash balance in the remaining escrow account of $11.4 million and the letter of credit has expired.
The aggregate amount of this escrow account will continue to decrease over time as we make the required
capital expenditures in West Virginia.
Critical Accounting Policies and Estimates
We review all significant estimates affecting our consolidated financial statements on a recurring basis and
record the effect of any necessary adjustment prior to their publication. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial statements; accordingly, it is possible that
actual results could differ from those estimates and changes to estimates could occur in the near term. The
preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial
statements, (ii) the disclosure of contingent assets and liabilities, and (iii) the reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those estimates. Estimates and judgments
are used when accounting for revenue recognition including the allowance for doubtful accounts, impairment of
long-lived assets, impairment of intangible assets, depreciation and amortization, pension and other
postretirement benefits, income taxes and contingencies, among others.
Management has discussed the development and selection of these critical accounting estimates with the
Audit Committee of our Board of Directors and our Audit Committee has reviewed our disclosures relating to
such estimates.
37
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES