UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017March 31, 2021

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

C:\Users\biantorn\Desktop\logo.gif

FRONTIER COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

06-0619596

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

401 Merritt 7

Norwalk, Connecticut

06851

(Address of principal executive offices)

(Zip Code)

(203) 614-5600

(Registrant's telephone number, including area code)code: (203) 614-5600

N/ASecurities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.25 per share

(Former name, former address and former fiscal year, if changed since last report)

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  X  x No ___¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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  X   x No ___¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

Smaller reporting company x Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the

Exchange Act¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No X   x

The number of shares outstanding of the registrant’s Common Stock as of October 27, 2017April 28, 2021 was 78,458,000.104,779,000.

1


FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

IndexTable of Contents

1

1


PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONSOLIDATED BALANCE SHEETS

($ in millions and shares in thousands, except for per-share amounts)

(Unaudited)

March 31, 2021

December 31, 2020

ASSETS

Current assets:

Cash and cash equivalents

$

2,107 

$

1,829 

Accounts receivable, less allowances of $148 and $130, respectively

519 

553 

Contract acquisition costs

93 

97 

Prepaid expenses

85 

90 

Income taxes and other current assets

43 

85 

Total current assets

2,847 

2,654 

Property, plant and equipment, net

12,987 

12,931 

Other intangibles, net

598 

677 

Other assets

528 

533 

Total assets

$

16,960 

$

16,795 

LIABILITIES AND EQUITY (DEFICIT)

Current liabilities:

Long-term debt due within one year

$

5,782 

$

5,781 

Accounts payable

507 

540 

Advanced billings

210 

202 

Accrued other taxes

202 

204 

Accrued interest

96 

47 

Pension and other postretirement benefits

48 

48 

Other current liabilities

306 

318 

Total current liabilities

7,151 

7,140 

Deferred income taxes

430 

343 

Pension and other postretirement benefits

2,194 

2,195 

Other liabilities

445 

452 

Total liabilities not subject to compromise

10,220 

10,130 

Liabilities subject to compromise

11,570 

11,565 

Total liabilities

21,790 

21,695 

Equity (Deficit):

Common stock, $0.25 par value (175,000 authorized shares,

106,025 issued, and 104,671 and 104,793 outstanding

at March 31, 2021 and December 31, 2020, respectively)

27 

27 

Additional paid-in capital

4,817 

4,817 

Accumulated deficit

(8,915)

(8,975)

Accumulated other comprehensive loss, net of tax

(744)

(755)

Treasury common stock

(15)

(14)

Total equity (deficit)

(4,830)

(4,900)

Total liabilities and equity (deficit)

$

16,960 

$

16,795 



 

 

 

 

 

 



 

 

 

 

 

 



 

(Unaudited)

 

 

 



 

September 30, 2017

 

December 31, 2016

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

286 

 

$

522 

Accounts receivable, less allowances of $69 and $131, respectively

 

 

780 

 

 

938 

Prepaid expenses

 

 

98 

 

 

88 

Income taxes and other current assets

 

 

98 

 

 

108 

Total current assets

 

 

1,262 

 

 

1,656 



 

 

 

 

 

 

Property, plant and equipment, net

 

 

14,375 

 

 

14,902 

Goodwill

 

 

9,102 

 

 

9,674 

Other intangibles, net

 

 

2,223 

 

 

2,662 

Other assets

 

 

114 

 

 

119 

Total assets

 

$

27,076 

 

$

29,013 



 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Long-term debt due within one year

 

$

166 

 

$

363 

Accounts payable

 

 

509 

 

 

698 

Advanced billings

 

 

277 

 

 

301 

Accrued content costs

 

 

130 

 

 

164 

Accrued other taxes

 

 

177 

 

 

134 

Accrued interest

 

 

205 

 

 

437 

Pension and other postretirement benefits

 

 

23 

 

 

23 

Other current liabilities

 

 

306 

 

 

324 

Total current liabilities

 

 

1,793 

 

 

2,444 



 

 

 

 

 

 

Deferred income taxes

 

 

2,253 

 

 

2,516 

Pension and other postretirement benefits

 

 

1,647 

 

 

1,602 

Other liabilities

 

 

369 

 

 

372 

Long-term debt

 

 

17,604 

 

 

17,560 



 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value (50,000 authorized shares,

 

 

 

 

 

 

11.125%, Series A, 19,250 shares issued and outstanding)

 

 

 -

 

 

 -

Common stock, $0.25 par value (175,000 authorized shares,

 

 

 

 

 

 

79,532 issued and 78,462 and 78,170 outstanding,

 

 

 

 

 

 

at September 30, 2017 and December 31, 2016, respectively)

 

 

20 

 

 

20 

Additional paid-in capital

 

 

5,124 

 

 

5,561 

Accumulated deficit

 

 

(1,234)

 

 

(460)

Accumulated other comprehensive loss, net of tax

 

 

(349)

 

 

(387)

Treasury common stock

 

 

(151)

 

 

(215)

Total equity

 

 

3,410 

 

 

4,519 

Total liabilities and equity

 

$

27,076 

 

$

29,013 



 

 

 

 

 

 

The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.

2

2


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2021 AND 2016

2020

($ in millions and shares in thousands, except for per-share amounts)

(Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended

 

For the nine months ended



 

September 30,

 

September 30,



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

2,251 

 

$

2,524 

 

$

6,911 

 

$

6,487 



 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Network access expenses

 

 

390 

 

 

440 

 

 

1,209 

 

 

1,053 

Network related expenses

 

 

497 

 

 

527 

 

 

1,468 

 

 

1,399 

Selling, general and administrative expenses

 

 

486 

 

 

582 

 

 

1,561 

 

 

1,535 

Depreciation and amortization

 

 

539 

 

 

578 

 

 

1,670 

 

 

1,469 

Goodwill impairment

 

 

 -

 

 

 -

 

 

670 

 

 

 -

Acquisition and integration costs

 

 

 

 

122 

 

 

15 

 

 

387 

Pension settlement costs

 

 

15 

 

 

 -

 

 

77 

 

 

 -

Restructuring costs and other charges

 

 

14 

 

 

11 

 

 

55 

 

 

11 

Total operating expenses

 

 

1,942 

 

 

2,260 

 

 

6,725 

 

 

5,854 



 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

309 

 

 

264 

 

 

186 

 

 

633 



 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income, net

 

 

 

 

 

 

 

 

14 

Loss (gain) on extinguishment of debt and debt exchanges

 

 

(1)

 

 

 

 

89 

 

 

Interest expense

 

 

381 

 

 

386 

 

 

1,157 

 

 

1,145 



 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(69)

 

 

(126)

 

 

(1,055)

 

 

(505)

Income tax benefit

 

 

(31)

 

 

(46)

 

 

(280)

 

 

(212)



 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(38)

 

 

(80)

 

 

(775)

 

 

(293)

Less: Dividends on preferred stock

 

 

54 

 

 

54 

 

 

161 

 

 

161 

Net loss attributable to

 

 

 

 

 

 

 

 

 

 

 

 

Frontier common shareholders

 

$

(92)

 

$

(134)

 

$

(936)

 

$

(454)



 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Frontier common shareholders

 

$

(1.19)

 

$

(1.73)

 

$

(12.06)

 

$

(5.87)



 

 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Frontier common shareholders

 

$

(1.19)

 

$

(1.73)

 

$

(12.07)

 

$

(5.87)



 

 

 

 

 

 

 

 

 

 

 

 

Total weighted average  shares outstanding - basic

 

 

77,797 

 

 

77,612 

 

 

77,714 

 

 

77,608 



 

 

 

 

 

 

 

 

 

 

 

 

Total weighted average shares outstanding - diluted

 

 

77,797 

 

 

77,612 

 

 

77,875 

 

 

77,608 



 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

March 31,

2021

2020

Revenue

$

1,676 

$

1,933 

Operating expenses:

Network access expenses

198 

286 

Network related expenses

422 

444 

Selling, general and administrative expenses

408 

444 

Depreciation and amortization

387 

415 

Loss on disposal of Northwest Operations

-

24 

Restructuring costs and other charges

48 

Total operating expenses

1,417 

1,661 

Operating income

259 

272 

Investment and other income, net

Pension settlement costs

-

(103)

Reorganization items, net

(25)

-

Interest expense (contractual interest for the

three months ended March 31, 2021

was $338 million)

(89)

(383)

Income (loss) before income taxes

147 

(209)

Income tax expense (benefit)

87 

(23)

Net income (loss)

60 

(186)

Basic and diluted net earnings (loss) per share

attributable to Frontier common shareholders

$

0.57 

$

(1.78)

Total weighted average shares outstanding - basic

104,556 

104,363 

Total weighted average shares outstanding - diluted

104,896 

104,363 

The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.


3

3


PART I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)

(DEBTOR-IN-POSSESSION)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2021 AND 2016

2020

($ in millions)

(Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended

 

For the nine months ended



 

September 30,

 

September 30,



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(38)

 

$

(80)

 

$

(775)

 

$

(293)



 

 

 

 

 

 

 

 

 

 

 

 

Pension settlement costs, net of tax

 

 

12 

 

 

 -

 

 

48 

 

 

 -

Other comprehensive income (loss), net of tax

 

 

(32)

 

 

(61)

 

 

(10)

 

 

(50)

Net current-period other comprehensive income (loss)

 

 

(20)

 

 

(61)

 

 

38 

 

 

(50)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(58)

 

$

(141)

 

$

(737)

 

$

(343)

For the three months ended

March 31,

2021

2020

Net income (loss)

$

60 

$

(186)

Other comprehensive income, net of tax

11 

86 

Comprehensive income (loss)

$

71 

$

(100)

The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.


4

4


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY (DEFICIT)

(DEBTOR-IN-POSSESSION)

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017

MARCH 31, 2021 AND 2020

($ in millions and shares in thousands)

(Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30, 2017



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Treasury

 

 

 



 

Preferred Stock

 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

Common Stock

 

Total



 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Loss

 

Shares

 

Amount

 

Equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2017 (See Note 1)

 

19,250 

 

$

 -

 

79,532 

 

$

20 

 

$

5,561 

 

$

(460)

 

$

(387)

 

(1,362)

 

$

(215)

 

$

4,519 

Cumulative-effect adjustment from adoption of ASU 2016-09

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

 

 -

 

 

 -

 

 

Stock plans

 

 -

 

 

 -

 

 -

 

 

 -

 

 

(57)

 

 

 -

 

 

 -

 

292 

 

 

64 

 

 

Dividends on common stock

 

 -

 

 

 -

 

 -

 

 

 -

 

 

(219)

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

(219)

Dividends on preferred stock

 

 -

 

 

 -

 

 -

 

 

 -

 

 

(161)

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

(161)

Net loss

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

(775)

 

 

 -

 

 -

 

 

 -

 

 

(775)

Pension settlement costs, net of tax

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

48 

 

 -

 

 

 -

 

 

48 

Other comprehensive income, net of tax

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(10)

 

 -

 

 

 -

 

 

(10)

Balance September 30, 2017

 

19,250 

 

$

 -

 

79,532 

 

$

20 

 

$

5,124 

 

$

(1,234)

 

$

(349)

 

(1,070)

 

$

(151)

 

$

3,410 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

Additional

Other

Treasury

Total

Common Stock

Paid-In

Accumulated

Comprehensive

Common Stock

Equity

Shares

Amount

Capital

Deficit

Loss

Shares

Amount

(Deficit)

Balance at January 1, 2021

106,025

$

27

$

4,817

$

(8,975)

$

(755)

(1,232)

$

(14)

$

(4,900)

Stock plans

-

-

-

-

-

(122)

(1)

(1)

Net income

-

-

-

60

-

-

-

60

Other comprehensive

income, net of tax

-

-

-

-

11

-

-

11

Balance at March 31, 2021

106,025

$

27

$

4,817

$

(8,915)

$

(744)

(1,354)

$

(15)

$

(4,830)

Accumulated

Additional

Other

Treasury

Common Stock

Paid-In

Accumulated

Comprehensive

Common Stock

Total

Shares

Amount

Capital

Deficit

Loss

Shares

Amount

Equity

Balance at January 1, 2020

106,025

$

27

$

4,815

$

(8,573)

$

(650)

(894)

$

(13)

$

(4,394)

Stock plans

-

-

1

-

-

(143)

-

1

Net loss

-

-

-

(186)

-

-

-

(186)

Other comprehensive

income, net of tax

-

-

-

-

86

-

-

86

Balance at March 31, 2020

106,025

$

27

$

4,816

$

(8,759)

$

(564)

(1,037)

$

(13)

$

(4,493)

The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.

5

5


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2021 AND 20162020

($ in millions)

(Unaudited)

For the three months ended March 31,

2021

2020

Cash flows provided from (used by) operating activities:

Net income (loss)

$

60

$

(186)

Adjustments to reconcile net income (loss) to net cash provided from (used by) operating activities:

Depreciation and amortization

387

415

Pension settlement costs

-

103

Stock-based compensation

(1)

1

Amortization of deferred financing costs

-

8

Other adjustments

1

1

Deferred income taxes

84

(30)

Loss on disposal of Northwest Operations

-

24

Change in accounts receivable

34

29

Change in accounts payable and other liabilities

48

110

Change in prepaid expenses, income taxes and other assets

52

2

Net cash provided from operating activities

665

477

Cash flows provided from (used by) investing activities:

Capital expenditures

(384)

(286)

Proceeds on sale of assets

2

2

Other

2

2

Net cash used by investing activities

(380)

(282)

Cash flows used by financing activities:

Long-term debt principal payments

-

(5)

Finance lease obligation payments

(5)

(8)

Other

(2)

-

Net cash used by financing activities

(7)

(13)

Increase in cash, cash equivalents, and restricted cash

278

182

Cash, cash equivalents, and restricted cash at January 1,

1,887

809

Cash, cash equivalents, and restricted cash at March 31,

$

2,165

$

991

Supplemental cash flow information:

Cash paid during the period for:

Interest

$

40

$

163

Income tax payments, net

$

-

$

1

Reorganization items, net

$

56

$

-



 

 

 

 

 

 



 

 

 

 

 

 



 

2017

 

2016



 

 

 

 

 

 

Cash flows provided from (used by) operating activities:

 

 

 

 

 

 

Net loss

 

$

(775)

 

$

(293)

Adjustments to reconcile net loss to net cash provided from (used by)

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,670 

 

 

1,469 

Loss on extinguishment of debt and debt exchanges

 

 

89 

 

 

Pension settlement costs

 

 

77 

 

 

 -

Pension/OPEB costs

 

 

22 

 

 

59 

Stock-based compensation expense

 

 

10 

 

 

21 

Amortization of deferred financing costs

 

 

26 

 

 

38 

Other adjustments

 

 

(11)

 

 

 -

Deferred income taxes

 

 

(286)

 

 

(163)

Goodwill impairment

 

 

670 

 

 

 -

Change in accounts receivable

 

 

161 

 

 

(56)

Change in accounts payable and other liabilities

 

 

(471)

 

 

(108)

Change in prepaid expenses, income taxes and other current assets

 

 

 

 

(12)

Net cash provided from operating activities

 

 

1,185 

 

 

962 



 

 

 

 

 

 

Cash flows provided from (used by) investing activities:

 

 

 

 

 

 

Capital expenditures - Business operations

 

 

(846)

 

 

(960)

Capital expenditures - Integration activities

 

 

(19)

 

 

(99)

Cash paid for the CTF Acquisition

 

 

 -

 

 

(9,886)

Proceeds on sale of assets

 

 

109 

 

 

 -

Other

 

 

 

 

 -

Net cash used by investing activities

 

 

(750)

 

 

(10,945)



 

 

 

 

 

 

Cash flows provided from (used by) financing activities:

 

 

 

 

 

 

Proceeds from long-term debt borrowings

 

 

1,500 

 

 

1,625 

Long - term debt payments

 

 

(1,662)

 

 

(113)

Financing costs paid

 

 

(15)

 

 

(38)

Premium paid to retire debt

 

 

(80)

 

 

 -

Dividends paid on common stock

 

 

(219)

 

 

(370)

Dividends paid on preferred stock

 

 

(161)

 

 

(161)

Capital lease obligation payments

 

 

(30)

 

 

(8)

Taxes paid on behalf of employees for shares withheld

 

 

(5)

 

 

(10)

Other

 

 

 

 

Net cash provided from (used by) financing activities

 

 

(671)

 

 

934 



 

 

 

 

 

 

Decrease in cash, cash equivalents, and restricted cash

 

 

(236)

 

 

(9,049)

Cash, cash equivalents, and restricted cash at January 1,

 

 

522 

 

 

9,380 



 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at September 30,

 

$

286 

 

$

331 



 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

Interest

 

$

1,373 

 

$

1,277 

Income tax refunds, net

 

$

(4)

 

$

(35)

The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.

6

6


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

(1) Summary of Significant Accounting Policies:

(a) 

a) Basis of Presentation and Use of Estimates:

Frontier Communications Corporation and its subsidiaries are referred to as “we,” “us,” “our,” “Frontier,” or the “Company” in this report. Our interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2016. Certain reclassifications of amounts previously reported have been made to conform to the current presentation, as described in Note 2 – Recent Accounting Literature. 2020. All significant intercompany balances and transactions have been eliminated in consolidation. These interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring accruals) considered necessary, in the opinion of Frontier’s management, to present fairly the results for the interim periods shown. Revenues, net lossincome (loss) and cash flows for any interim periods are not necessarily indicative of results that may be expected for the full year.

For our interim financial statements as of and for the period ended September 30, 2017,March 31, 2021, we evaluated subsequent events and transactions for potential recognition or disclosure through the date that we filed this Form 10-Q with the Securities and Exchange Commission (SEC).

Effective April 1, 2016, Frontier’s scope of operations and balance sheet changed materially as a result of the completion of the CTF Acquisition, as described in Note 3 – Acquisitions. Historical financial data presented for Frontier is not indicative of the future financial position or operating results for Frontier, and includes the results of the CTF Operations, as defined in Note 3 – Acquisitions, from the date of acquisition on April 1, 2016.

The preparation of our interim financial statements in conformity with 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 the allowance for doubtful accounts, asset impairments, indefinite-lived intangibles, depreciation and amortization, income taxes, business combinations, and pension and other postretirement benefits, among others.

We operate in one1 reportable segment. Frontier provides both regulated and unregulated voice, data and video services to consumer, commercial and wholesale customers and is typically the incumbent voice services provider in its service areas.

Chapter 11 Cases - On July 10, 2017,April 14, 2020 (the Petition Date), Frontier Communications Corporation (as it may be reorganized pursuant to the Plan, Reorganized Frontier) and its subsidiaries (collectively, the Company Parties or the Debtors and, as they may be reorganized pursuant to the Plan (as defined herein), the Reorganized Company Parties or the Reorganized Debtors) commenced cases under chapter 11 (the Chapter 11 Cases) of title 11 of the United States Code (the Bankruptcy Code) in the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On August 21, 2020, the Company Parties filed the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the Plan) with the Bankruptcy Court. On August 27, 2020, the Bankruptcy Court entered the Order Confirming the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the Confirmation Order), which approved and confirmed the Plan. The effective date of the Plan will occur after all conditions precedent to the Plan have been satisfied (the Effective Date), which is expected to occur on April 30, 2021, at which time we effectedexpect to emerge from the Chapter 11 Cases. See Note 3 for more information.

b) Going Concern:

The Company previously disclosed, based on its financial condition and its projected operating results, the defaults under its debt agreements, and the risks and uncertainties surrounding its Chapter 11 proceedings (see Note 3), that there was substantial doubt as to the Company’s ability to continue as a onegoing concern as of the issuance of the Company’s 2020 Annual Report on Form 10-K.

7


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Based on the current status of the Chapter 11 Cases, including that the necessary regulatory approvals have been received, the Company is emerging from the Chapter 11 Cases on or about April 30, 2021 and, in so doing, eliminating approximately $11 billion in debt through the restructuring process, improving the Company’s capital structure and stabilizing its liquidity position. As such, as of the filing of this Quarterly Report on Form 10-Q, the substantial doubt as to the Company’s ability to continue as a going concern has been alleviated by the emergence from the Chapter 11 Cases. See Note 3 for fifteen reverse stock splitmore information.

Our consolidated interim unaudited financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our common stock. The reverse stock split reducedthen-outstanding obligations under the numberCompany’s amended and restated credit agreement, dated as of common shares issued (which includesFebruary 27, 2017 (as amended, the JPM Credit Agreement), the Company’s 8.000% first lien secured notes due April 1, 2027 (the Original First Lien Notes), the Company’s 8.500% second lien secured notes due April 1, 2026 (the Original Second Lien Notes), our unsecured notes and debentures and the secured and unsecured debentures of our subsidiaries. As of March 31, 2021, amounts that were outstanding sharesunder the JPM Credit Agreement, our Original First Lien Notes, and treasury shares) from approximately 1,193,000,000 sharesour Original Second Lien Notes have been repaid in full. We have reclassified our unsecured notes and debentures and the secured and unsecured debentures of our subsidiaries to 80,000,000 shares,“Long term debt due within one year” or “Liabilities Subject to Compromise”, based on the event of default or reinstatement provisions of each security in the Restructuring Support Agreement (as defined herein), on our consolidated balance sheet as of March 31, 2021. For additional discussion related to our debt obligations, and reduced shares outstanding from 1,178,000,000 sharesdetails of our refinancing of our secured debt, refer to 79,000,000 shares. Note 10.

c) Impact of COVID-19:

On March 11, 2020, the World Health Organization declared the highly contagious and lethal corona virus outbreak a global pandemic (COVID-19) and recommended containment and other mitigation measures worldwide to lessen the transmission of COVID-19. In an effort to reduce the economic impacts of COVID-19, the United States federal government has responded with multiple stimulus bills. Given the evolving nature of the pandemic and the response of multiple levels of government as well as the uncertainty of funding available for services provided, the full impact of the pandemic and response(s) to it on the Company are unknown at this time.

In addition, and at the same time, the total number of shares of common stock that Frontier is authorized to issue changed from 1,750,000,000 shares to 175,000,000 shares. There was no change in the par valuesome of the common stock,states we operate in (including California and no fractional shares were issued. All share and per share amounts in the financial statements and footnotesNew York) have been retroactively adjusted for all periods presented to give effect to the reverse stock split. Asissued executive orders as a result of COVID-19 that further impact our reverse stock splitbusiness, including prohibiting the conversion ratesdisconnection of services for customers for the length of the state of emergency. State and federal governments may continue to ask companies to aid in pandemic response. While certain customers have taken advantage of our Series A Preferred StockCOVID-19 related relief programs, as of March 31, 2021, very few had past due balances beyond the point of normal disconnection.

Frontier’s response to COVID-19 has included several operational safety precautions such as continuing to require personal protective equipment on any employees entering a customer location. The percentage of Frontier’s employees who have reported testing positive for COVID-19 is small and continues to track below the percentage of reported cases both nationally and in those states in which Frontier has a significant number of employees. Through March 31, 2021, we had not experienced any significant disruptions in our supply chain; however, some of our business partners, particularly those vendors operating outside of the United States, have been more greatly impacted which has affected our service levels and distribution of work.

8


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

As the COVID-19 pandemic continues, certain states are currently considering legislation or other regulations to adopt additional protections for workers impacted by COVID-19. To date, we have not experienced significant disruptions in our workforce due to COVID-19 related absences or legislative or regulatory changes.

While overall the operational and financial impacts to Frontier of the COVID-19 pandemic for the three months ended March 31, 2021 were proportionately adjusted.not significant, we continue to closely monitor the ongoing impact to our employees, our customers, our business and our results of operations. We have experienced a slowdown in service activations, this negative impact is offset by lower churn within our consumer and Small and Medium Business customers. We also continue to closely track our customers’ payment activity as well as external factors, including the expiration of federal wage subsidies for individuals and small businesses which could materially impact payment trends. With more people working from home, we have experienced higher demands on our network and higher sales activity for our residential broadband service offering. This sustained increase in network demand could lead to reduced network availability and potential outages, which may impair our ability to meet customer service level commitments, lead to higher costs, higher customer churn and potential increased regulatory actions. These potential changes, among others, could have a material financial impact to Frontier.

(b)  d) Debtor-in-Possession:

In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to certain motions and applications intended to limit the disruption of the bankruptcy proceedings on our operations (the First Day Motions) and other motions filed with the Bankruptcy Court, the Bankruptcy Court has authorized us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to obtain DIP financing, pay employee wages and benefits, settle certain de minimis disputes and pay vendors and suppliers in the ordinary course for all goods and services.

e) Revenue Recognition:

Revenue for data & Internet services, voice services, video services and switched and non-switched access services is recognized when servicesas the service is provided. Services that are provided or when products are delivered to customers. Revenue that is billed in advance includesinclude 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 deferred as a component of “Advanced billings” on our consolidated balance sheet and recognized as revenue over the period that the services are provided. RevenueServices that isare billed in arrears includesinclude non-recurring network access services (including data services), switched access services, and non-recurring voice and video services. The earned but unbilled portion of these fees is recognized as

7


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

revenue in our consolidated statements of operations and accrued in “Accounts receivable” on our consolidated balance sheet in the period that the services are provided. Excise taxes are recognized as a liability when billed. Installation

9


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Satisfaction of Performance Obligations

Frontier satisfies its obligations to customers by transferring goods and services in exchange for consideration received from the customer. The timing of Frontier’s satisfaction of the performance obligation often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. Frontier recognizes a contract asset or liability when the Company transfers goods or services to a customer and bills an amount which differs from the revenue allocated to the related performance obligations.

Bundled Service and Allocation of Discounts

When customers purchase more than one service, the revenue allocable to each service is determined based upon the relative stand-alone selling price of each service received. We frequently offer service discounts as an incentive to customers. Service discounts reduce the total transaction price allocated to the performance obligations that are satisfied over the term of the customer contract. We may also offer incentives which are considered cash equivalents (e.g. Visa gift cards) that similarly result in a reduction of the total transaction price as well as lower revenue over the term of the contract. A contract asset is often created during the beginning of the contract term when the term of the incentive is shorter than the contract term. These contract assets are realized over the term of the contract as our performance obligations are satisfied and customer consideration is received.

Customer Incentives

In the process of acquiring and/or retaining customers, we may issue a variety of other incentives aside from service discounts or cash equivalent incentives. Those incentives that have stand-alone value (e.g. gift cards not considered cash equivalents or free goods/services) are considered a separate performance obligation. As a result, while these incentives are free to the customer, a portion of the consideration received from the customer over the contract term is ascribed to them based upon their relative stand-alone selling price. The revenue, reflected in “Other” revenue, and costs, reflected in “Network access expenses”, for these incentives are recognized when they are delivered to the customer and the performance obligation is satisfied. Similar to discounts, these types of incentives generally result in the creation of a contract asset during the beginning of the contract term which is recorded in Other current assets and Other assets on our consolidated balance sheet.

Upfront Fees

All non-refundable upfront fees provide our customers with a material right to renew, and their related direct and incremental coststherefore, are initially deferred and recognized asamortized into revenue and expense over the averageexpected period for which related services are provided. With upfront fees assessed at the beginning of a contract, a contract liability is often created, which is reduced over the term of the contract as the performance obligations are satisfied. The contract liabilities are recorded in Other current liabilities and Other liabilities on our consolidated balance sheet.

Contributions in Aid of Construction (CIAC)

It is customary for us to charge customers for certain construction activities. These activities are requested by the customer and construction charges are assessed at the beginning of a contract. When charges are incurred, a contract liability is often created, which is reduced over the term of the contract as performance obligations are satisfied. The contract liabilities are recorded in Other current liabilities and Other liabilities on our consolidated balance sheet.

10


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Contract Acquisition Costs

Certain costs to acquire customers are deferred and amortized over the expected customer relationship. We recognize as current period expense the portionlife (average of installation4.0 years). For Frontier, this includes certain commissions paid to acquire new customers. Commissions attributable to new customer contracts are deferred and amortized into expense. Unamortized deferred commissions are recorded in Contract acquisition costs that exceeds installation fee revenue.and Other assets on our consolidated balance sheet.

Taxes, Surcharges and Subsidies

Frontier collects various taxes from its customers and subsequently remits these taxesthe funds to governmental authorities. Substantially all of these taxes are recorded through the consolidated balance sheet and presented on a net basis in our consolidated statements of operations. We also collect Universal Service Fund (USF) surcharges from customers (primarily federal USF), which amounted to $55 million and $49 million for the three months ended March 31, 2021 and 2020, respectively, and video franchise fees, which amounted to $6 million and $9 million for the three months ended March 31, 2021 and 2020, respectively, that we have recorded on a gross basis in our consolidated statements of operations and included within “Revenue” and “Network related expenses” of $52 million and $60 million, and $160 million and $161 million for the three and nine months ended September 30, 2017 and 2016, respectively..

In June 2015, weFrontier accepted the FCC’sFCC offer of support to price cap carriers under the Connect America Fund (CAF) Phase II offer of support,program, which is a successor to and augments the USF frozen high cost support that we had been receiving pursuant to a 2011 FCC order. Upon completion of the CTF Acquisition, Frontier assumed the CAF Phase II support and related obligations that Verizon had previously accepted with regard to California and Texas. CAF Phase II funding is a program intended to subsidize theprovide long-term support for broadband in high cost of establishing and delivering communications services to certain unserved or underserved areas. We are recognizing theseFCC’s CAF Phase II subsidies into revenue on a straight linestraight-line basis which is consistentover the seven year funding term.

f)Cash Equivalents:

We consider all highly liquid investments with how the costs related to these subsidies are being and are expectedan original maturity of three months or less to be incurred. CAF Phase IIcash equivalents. Restricted cash of $58 million is a multi-year program which requires us to deploy broadband to a specified number of householdsincluded in each of the states where funding was accepted. Failure to meet“Other assets” on our deployment obligations at the end of the program in 2020 would result in a return of a portion of the funding received. We regularly evaluate our ability to meet our broadband deployment obligations and adjust revenue accordingly.

We categorize our products, services and other revenues among the following five categories:

·

Data and Internet services include broadband services for consumer and commercial customers. We provide data transmission services to high volume commercial customers and other carriers with dedicated high capacity circuits (“nonswitched access”) including services to wireless providers (“wireless backhaul”);

·

Voice services include traditional local and long distance wireline services, Voice over Internet Protocol (VoIP) services, as well as a number of unified messaging services offered to our consumer and commercial customers. Voice services also include the long distance voice origination and termination services that we provide to our commercial customers and other carriers;

·

Video services include services provided directly to consumer customers through the FiOS® and Vantage video brands, and through DISH® satellite TV services;

·

Other includes sales of customer premise equipment to our commercial customers and directory services, less our provision for bad debts; and

·

Switched Access and Subsidy revenues include revenues derived from allowing other carriers to use our network to originate and/or terminate their local and long distance voice traffic (“switched access”). These services are primarily billed on a minutes-of-use basis applying tariffed rates filed with the FCC or state agencies. We also receive cost subsidies from state and federal authorities, including the Connect America Fund Phase II.

8


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table provides a summary of revenues from external customers by the categories of Frontier’s products and services:



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended

 

For the nine months ended

 



 

September 30,

 

September 30,

 



 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

2017

 

2016

 

2017

 

2016

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Data and Internet services

 

$

956 

 

$

1,045 

 

$

2,923 

 

$

2,680 

 

Voice services

 

 

702 

 

 

809 

 

 

2,177 

 

 

2,112 

 

Video services

 

 

318 

 

 

392 

 

 

994 

 

 

879 

 

Other

 

 

84 

 

 

73 

 

 

231 

 

 

218 

 

Customer revenue

 

 

2,060 

 

 

2,319 

 

 

6,325 

 

 

5,889 

 

Switched access and subsidy

 

 

191 

 

 

205 

 

 

586 

 

 

598 

 

Total revenue

 

$

2,251 

 

$

2,524 

 

$

6,911 

 

$

6,487 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

(c)Goodwill and Other Intangibles:

Goodwill represents the excess of purchase price over the fair value of identifiable tangible and intangible net assets acquired in a business combination. We have undertaken studies to determine the fair values of assets and liabilities acquired as well as to allocate the purchase price to assets and liabilities, including property, plant and equipment, goodwill and other identifiable intangibles. We examine the carrying value of our goodwill and trade name annuallyconsolidated balance sheet as of both March 31, 2021 and December 31, or more frequently2020. These amounts represent Letters of Credit Obligations and a utility adequate assurance account that is required under bankruptcy rules.

g)Definite and Indefinite Lived Intangible Assets:

Intangible assets arising from business combinations, such as circumstances warrant, to determine whether therecustomer lists, tradenames, and royalty agreements, are any impairment losses. We test for goodwill impairmentinitially recorded at the “operating segment” level, as that term is defined in GAAP.

We determined that we have one operating segment based on a number of factors that our management uses to evaluateestimated fair value. Frontier amortizes its acquired customer lists and run our business operations, including similarities of customers, products and technology. We tested goodwill for impairment as of September 30, 2017 as a result of the continued decline in share price of our common stock since June 30, 2017, the date of our last goodwill impairment test. Refer to Note 6 for a discussion of our goodwill impairment testing and results as of September 30, 2017. As stated in Note 2, we early adopted ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” during the second quarter of 2017 in conjunction with our goodwill impairment assessment.

Frontier amortizescertain other finite-lived intangible assets over their estimated useful lives on the accelerated method of sum of the years digits.digits and its royalty agreement over its estimated useful life on the straight-line method. We review such intangible assets at least annually as of December 31st to assess whether any potential impairment exists and whether factors exist that would necessitate a change in useful life and a different amortization period.

h)Lease Accounting:

We determine if an arrangement contains a lease at inception. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating and Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating and finance lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms used in accounting for leases may reflect options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term. ROU assets for operating leases are recorded to “Other Assets”, and the related liabilities recorded to “Other current liabilities”, and “Other liabilities” on our consolidated balance sheets. Assets subject to finance leases are included in “Property, Plant &

11


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Equipment”, with corresponding liabilities recorded to “Other current liabilities”, and “Other liabilities” on our consolidated balance sheets.

(2) Recent Accounting Literature:

Recent Accounting Pronouncements Not Yet Adopted

Revenue RecognitionFinancial Instrument Credit Losses

In May 2014, the Financial Accounting Standards Board (FASB)June 2016, The FASB issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers.”ASU 2016-13, “Financial Instruments – Credit Losses”. This standard, along with its related amendments, requires companies to recognize revenue to depictupdate the transfer of promised goods or services to customers in an amount that reflects the consideration to which they expect to be entitled in exchange for those goods or services. This new standard will be adopted by Frontier for annual and interim reporting periods beginning with the first quarter of 2018. 

The FASB allows two adoption methods under ASC 606. Companies are permitted to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. We currently plan to adopt the standard in the first quarter of 2018, using the

9


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

“modified retrospective method.” Under that method, we will apply the rules to all contracts existing as of January 1, 2018, recognizing, in beginning retained earnings, a cumulative-effect adjustment to include the establishment of contract asset and contract liability accounts with a corresponding adjustment to retained earnings. We will also provide additional disclosures comparing revenue recognized under ASC 606 to revenue as reported prior to the adoption of the standard.

Upon initial evaluation, we believe the key changes in the standard that impact our revenue recognition relate to the allocation of contract revenues among various services and equipment, and the timing of when those revenues are recognized. Additionally, the new standard will impact the timing of recognizing costs to obtain contracts. This includes a change in our existing policy related to the way we account for customer incentives, upfront non-recurring charges, commission payments, customer disputes and the allocation of discounts.

We are in the process of identifying and implementing changes to our systems, processes, policies and internal controls to meet the standard’s reporting and disclosure requirements.

Leases

In February 2016, the FASB issued ASU No. 2016 – 02, “Leases (Topic 842).” This standard establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Upon implementation, lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. It will be critical to identify leases embedded in a contract to avoid misstating the lessee’s balance sheet. For incomecurrent financial statement purposes, the FASB retained a dualimpairment model requiring leasesentities to be classified as either operating or finance. Classification will beuse a forward-looking approach based on criteria that are largely similarexpected losses to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar toestimate credit losses on certain types of financial instruments, including trade receivables. For the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. The new guidanceCompany, ASU 2016-13 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years using modified retrospective application. Early application is permitted.  2022, with early adoption permitted. Frontier is in the initial stages ofcurrently evaluating the potential impact of adopting this new standard may have on theour consolidated financial statements.

Compensation – Retirement BenefitsReference Rate Reform

In March 2017,2020, the FASB issued ASU No. 2017-07, “Improving2020-04, "Reference Rate Reform (Topic 848): Facilitation of the PresentationEffects of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”Reference Rate Reform on Financial Reporting". This standardprovides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. The standard applies to contracts and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. Frontier is evaluating the impact of the adoption of this standard, including optional expedients, on our consolidated financial statements.

(3) Liquidity and Financial Condition:

Restructuring Support Agreement

On April 14, 2020, the Company Parties entered into a Restructuring Support Agreement (the Restructuring Support Agreement) with certain of its noteholders (the Consenting Noteholders), pursuant to which the Consenting Noteholders agreed, subject to certain terms and conditions, to support a financial restructuring (the Restructuring) of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to the Plan to be filed in the Chapter 11 Cases.

In accordance with the Restructuring Support Agreement, the Consenting Noteholders agreed, among other things, to:

(i) support the transactions (the Restructuring Transactions) described in, within the timeframes outlined in, and in accordance with the Restructuring Support Agreement;

(ii) not take any action, directly or indirectly, that is reasonably likely to interfere with acceptance, implementation, or consummation of the Restructuring Transactions;

(iii) vote each of its Senior Notes Claims (as defined in the Restructuring Support Agreement) to accept the Plan; and

(iv) not transfer Senior Notes Claims held by each Consenting Noteholders except with respect to limited and customary exceptions, including requiring any transferee to either already be bound or become bound by the terms of the Restructuring Support Agreement.

In accordance with the Restructuring Support Agreement, the Company Parties agreed, among other things, to:

(i) support and take all steps reasonably necessary and desirable to consummate the Restructuring Transactions in accordance with the Restructuring Support Agreement;

12


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(ii) support and take all steps reasonably necessary and desirable to obtain entry of (a) the final orders of the Bankruptcy Court authorizing the relevant Company Parties’ entry into the documents governing a senior secured superpriority DIP financing facility, (b) the order of the Bankruptcy Court approving the disclosure statement related to the Plan pursuant to section 1125 of the Bankruptcy Code and (c) the Bankruptcy Court’s order confirming the Plan;

(iii) use commercially reasonable efforts to obtain any and all required governmental, regulatory, and/or third-party approvals for the Restructuring Transactions;

(iv) act in good faith and use commercially reasonable efforts to execute and deliver certain required documents and agreements to effectuate and consummate the Restructuring Transactions as contemplated by the Restructuring Support Agreement;

(v) operate their businesses in the ordinary course of business in a manner consistent with the Restructuring Support Agreement and past practice and use commercially reasonable efforts to preserve their businesses; and

(vi) not, directly or indirectly, object to, delay, impede, or take any other action to interfere with acceptance, implementation, or consummation of the Restructuring Transactions.

The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including the failure to meet specified milestones related to consummation of the Plan. In addition, the Restructuring Support Agreement shall automatically terminate on the Effective Date of the Plan once all conditions precedent to the Plan have been satisfied.

Chapter 11 Cases

As an initial step towards implementation of the Plan, on the Petition Date, the Company Parties filed the Chapter 11 Cases in the Bankruptcy Court. Each Company Party continues to operate its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476 (RDD).

In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business, however, we may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. To that end, on the Petition Date, the Company Parties filed the First Day Motions, which were approved after a final hearing held on May 22, 2020. Pursuant to the First Day Motions, the Bankruptcy Court authorized us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders: continue to operate our cash management system and honor certain prepetition obligations related thereto; maintain existing business forms; continue to perform intercompany transactions; obtain super priority administrative expense status for post-petition intercompany balances; pay certain prepetition claims of critical vendors, lien claimants and section 503(b)(9) of the Bankruptcy Code claimants in the ordinary course of business on a post-petition basis; pay prepetition employee wages, salaries, other compensation and reimbursable employee expenses and continue employee benefits programs; pay obligations under prepetition insurance policies, continue to pay certain brokerage fees; renew, supplement, modify or purchase insurance coverage; maintain our surety bond program; pay certain prepetition taxes and fees; honor certain prepetition obligations to customers and continue certain customer programs in the ordinary course of business; and pay or honor prepetition claims of content providers.

Plan and Disclosure Statement

On May 15, 2020, the Company Parties filed a proposed Joint Plan of Reorganization and related Disclosure Statement (the Plan), each of which were amended on June 26, 2020, June 29, 2020 and June 30, 2020. On May 15, 2020, the Debtors also filed a proposed order approving the Disclosure Statement and various plan solicitation materials, including the solicitation and voting procedures, which was revised on June 29, 2020

13


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(including modifications to some of the exhibits). On June 30, 2020, the Bankruptcy Court entered the modified order approving the adequacy of the Disclosure Statement and the solicitation and notice procedures and the forms of voting ballots and notices in connection therewith. The order established June 29, 2020 as the voting record date, July 2, 2020 as the solicitation launch date and July 31, 2020 as the voting deadline.

On August 21, 2020, the Company Parties filed the Plan with the Bankruptcy Court. On August 27, 2020, the Bankruptcy Court entered the Confirmation Order, which approved and confirmed the Plan. The Effective Date of the Plan will occur once all conditions precedent to the Plan have been satisfied. As previously announced, as of April 15, 2021, the Company had received PUC approvals or favorable determinations from all required states.

The Plan as approved and confirmed by the Bankruptcy Court provides for:

the applicable (x) Debtors, with the consent of the Consenting Noteholders then holding greater than 50.1% of the aggregate outstanding principal amount of senior notes claims that are held by all Consenting Noteholders subject to the Restructuring Support Agreement as of such date (the Required Consenting Noteholders), or (y) Reorganized Debtors taking any action as may be necessary or advisable to effectuate the restructuring transactions described in the Plan and Restructuring Transactions Memorandum (as defined in the Plan), including;

othe execution, delivery, and filing of any organizational and governance documents for the Reorganized Company Parties;

oany and all actions necessary or appropriate to effectuate the Secured Creditor Settlement (as defined below); and

othe execution, delivery, and filing of all agreements, indentures, notes, filings, documents, and instruments delivered or entered into in connection with one or more DIP financing facilities, which shall be used to repay certain of the Company Parties’ prepetition secured indebtedness and shall convert into an exit facility on the Effective Date (a DIP-to-Exit Facility), and a DIP revolving financing facility, which shall, subject to certain conditions, convert into an exit revolving facility (a DIP-to-Exit Revolving Facility and, together with a DIP-to-Exit Facility, DIP Facilities);

the final satisfaction, compromise, settlement, release, and discharge of claims arising under, derived from, secured by, based on, or related to any DIP-to-Exit Facility documents or DIP-to-Exit Revolving Facility documents, on the Effective Date in exchange for payment in full in cash or, at the Company Parties’ election, and solely to the extent permitted under DIP-to-Exit Facility documents or DIP-to-Exit Revolving Facility documents, as applicable, or as otherwise agreed, such holder’s pro rata share of the applicable exit facilities;

on the Effective Date, issuance of takeback debt by one or more of the Reorganized Company Parties (the Takeback Debt), in a principal amount of $750 million, which shall include the following terms which may be modified subject to requisite consent under the Plan):

oan interest rate that is either (a) no more than 2.50% higher than the interest rate of the next most junior secured debt facility to be entered into on the Effective Date if the Takeback Debt is secured on a third lien basis or (b) no more than 3.50% higher than the interest rate of the most junior secured debt facility to be entered into on the Effective Date if the Takeback Debt is unsecured;

oa maturity of no less than one year outside of the longest-dated debt facility to be entered into by the Reorganized Company Parties on the Effective Date, provided that in no event shall the maturity of the Takeback Debt be longer than eight years from the Effective Date;

oto the extent the Original Second Lien Notes claims are reinstated under the Plan, the Takeback Debt will be third lien debt, provided that to the extent the Original Second Lien Notes claims are paid in full in cash during the pendency of the Chapter 11 Cases or under the Plan, the Company Parties and

14


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

the Required Consenting Noteholders will agree on whether the Takeback Debt will be secured or unsecured, within three business days of the Company Parties’ delivery to the Consenting Noteholders of a term sheet for the financing to repay the Original Second Lien Notes in full in cash that contains terms and conditions reasonably acceptable to the Company Parties and the Required Consenting Noteholders;

othe Takeback Debt amount is subject to downward adjustment by the Consenting Noteholders holding at least sixty-six and two-thirds percent of the aggregate outstanding principal amount of senior notes that are held by all Consenting Noteholders; and

oall other terms including, without limitation, covenants and governance, shall be reasonably acceptable to the Company Parties and the Required Consenting Noteholders; provided that such terms shall not be more restrictive than those in the indenture for the Original Second Lien Notes.

The Plan, among other things and subject to the terms of the Secured Creditor Settlement, contemplates the following treatment of claims against and interests in the Company Parties:

at the option of the applicable Reorganized Company Party, holders of secured claims against a Company Party that, absent its secured status, would be entitled to priority in right of payment under section 507(a)(8) of the Bankruptcy Code (determined irrespective of time limitations) (the Secured Tax Claims) shall receive (i) payment in full in cash or (ii) payment in cash made in equal semi-annual cash payments commencing as of the Effective Date or as soon as reasonably practicable thereafter and continuing for five years, in an aggregate amount equal to such claim, together with interest at the applicable non-default contract rate under non-bankruptcy law;

at the option of the applicable Company Party, holders of claims entitled to priority in right of payment under section 507(a) of the Bankruptcy Code other than Administrative Claims or Priority Tax Claims (each as defined in the Plan) shall receive payment in full in cash or such other treatment rendering such claims unimpaired;

claims arising under, derived from, based on, or related to the Company’s $850 million secured revolving credit facility maturing on February 27, 2024 (the Revolver) shall be repaid on or before the Effective Date, including payment of interest payments calculated at the non-default contract rate through the earlier of the Effective Date or repayment of the Revolver in full in cash (which shall include accrued but unpaid postpetition interest);

claims arising under, derived from, based on, or related to the JPM Credit Agreement shall be repaid on or before the Effective Date or reinstated on the Effective Date solely in the event that financing to repay such claims cannot be obtained, including payment of interest payments calculated at the non-default contract rate through the earlier of the Effective Date or repayment of Frontier’s $1,740 million senior secured Term Loan B facility (the Term Loan B) maturing on June 15, 2024 in full in cash (which shall include accrued but unpaid postpetition interest);

claims arising under, derived from, based on, or related to the Original First Lien Notes, issued pursuant to the indenture, dated as of March 15, 2019, by and among the Company, as issuer, the subsidiary guarantors party thereto, JPMorgan Chase Bank, N.A. (JPM), as collateral agent, and Wilmington Trust, National Association, as successor trustee, shall be repaid on or before the Effective Date or reinstated on the Effective Date, including payment of interest payments calculated at the non-default contract rate through the earlier of the Effective Date or repayment of the Original First Lien Notes in full in cash (which shall provide for the payment of accrued but unpaid postpetition interest);

claims arising under, derived from, based on, or related to the Original Second Lien Notes, issued pursuant to that certain indenture, dated as of March 19, 2018, by and among the Company, as issuer, the

15


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

subsidiary guarantors party thereto, and Wilmington Savings Fund Society FSB, as successor trustee and successor collateral agent (the Original Second Lien Notes Trustee), shall be repaid on or before the Effective Date or reinstated on the Effective Date, including payment of interest payments calculated at the non-default contract rate as required through the earlier of the Effective Date or repayment of the Original Second Lien Notes in full in cash (which shall provide for the payment of accrued but unpaid postpetition interest);

claims arising under, derived from, based on or related to (a) the 8.500% secured notes due November 15, 2031, issued by Frontier Southwest Incorporated pursuant to the Restated Indenture, dated June 1, 1940, by and among Frontier Southwest Incorporated, as issuer, and BOKF, NA, as successor trustee, and (b) Rural Utilities Service loan contracts due January 3, 2028 (collectively, the Subsidiary Secured Notes) shall be reinstated on the Effective Date, with holders of such claims receiving ordinary course cash interest payments at the applicable non-default contract rate through the Effective Date;

claims arising under, derived from, based on or related to the 6.750% unsecured notes due May 15, 2027 issued by Frontier California Inc., the 6.860% unsecured notes due February 1, 2028 issued by Frontier Florida LLC, the 6.730% unsecured notes due February 15, 2028 issued by Frontier North Inc., the 8.400% unsecured notes due October 15, 2029 issued by Frontier West Virginia Inc. and the applicable indentures, debentures and purchase agreements associated therewith shall be reinstated on the Effective Date, with holders of such claims receiving ordinary course cash interest payments at the applicable non-default contract rate through the Effective Date;

holders of claims arising under, derived from, based on, or related to the unsecured notes issued by the Company shall receive their (i) pro rata share of and interest in the Incremental Senior Notes Payment Amount (as defined in the Plan) and (ii) pro rata share of and interest in (after first reducing, for distribution purposes only, the amount of each such holder’s senior notes claim on a dollar-for-dollar basis by the amount of Incremental Senior Notes Payments, and solely to the extent actually paid): (a) 100% of the Reorganized Company’s new common stock, subject to dilution by the Reorganized Company’s management incentive plan; (b) the Takeback Debt, if any; and (c) the Surplus Cash (as defined in the Plan), if any;

to the extent not already satisfied during the Chapter 11 Cases, holders of certain other claims that are not secured shall receive: (i) payment in full in cash; (ii) reinstatement; or (iii) such other treatment rendering such claims unimpaired, in each case as reasonably acceptable to the Company Parties and the Required Consenting Noteholders;

holders of secured claims (other than claims arising under, derived from, based on or related to the Revolver, the Term Loan B, the Original First Lien Notes, the Original Second Lien Notes, the Subsidiary Secured Notes, the Secured Tax Claims or DIP Facilities) shall receive, at the option of the applicable Company Party: (i) payment in full in cash, (ii) reinstatement; (iii) delivery of the collateral securing such claim; or (iv) such other treatment rendering such claim unimpaired;

claims subject to subordination under section 510(b) of the Bankruptcy Code shall be cancelled, released, discharged, and extinguished;

all intercompany claims and intercompany interests shall be either (a) reinstated or (b) cancelled on the Effective Date; and

all equity securities in the Company shall be cancelled, released and extinguished on the Effective Date.

For more information on the repayment of the Revolver, the Original First Lien Notes, the Original Second Lien Notes and the Term Loan B, see Note 10.

16


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Secured Creditor Settlement

The Plan will effectuate the settlement, release, compromise, discharge, and other resolution of all outstanding claims, interests, and causes of action, including the Objection of the Ad Hoc First Lien Committee to the Debtors’ Third Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 857], the Objection of the Original Second Lien Notes Trustee to the Debtors’ Third Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 858], and the Second Lien Committee’s Joinder to the Original Second Lien Notes Trustee’s Objection [Docket No. 860], as between the Company Parties, the ad hoc committee of certain unaffiliated holders of Term Loan B claims and Original First Lien Notes claims (the First Lien Committee) represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP and PJT Partners LP, the Original Second Lien Notes Trustee, and the ad hoc committee of certain unaffiliated holders of Original Second Lien Notes claims represented by Quinn Emanuel Urquhart & Sullivan, LLP (the Second Lien Committee) (such settlement, the Secured Creditor Settlement). The Secured Creditor Settlement includes, among other terms and subject to certain conditions, the following key terms:

holders of Term Loan B claims, Original First Lien Notes claims, and Original Second Lien Notes claims, and the First Lien Committee and Second Lien Committee, shall be deemed to have consented to reinstatement and shall not allege, and shall be deemed to have waived and foregone any objections to, any defaults arising from the transactions set forth in the Plan;

holders of Term Loan B claims, Original First Lien Notes claims, and Original Second Lien Notes claims, and the First Lien Committee and Second Lien Committee shall be deemed to have consented to and shall not impede or otherwise delay the Debtors’ pursuit of certain debtor in possession/exit financing facilities;

holders of Term Loan B claims, Original First Lien Notes claims, and Original Second Lien Notes claims, and the First Lien Committee and Second Lien Committee, shall waive and forgo any and all “make-whole” claims and claims to default interest under the JPM Credit Agreement, the Original First Lien Notes indenture, and/or the Original Second Lien Notes indenture, as applicable;

holders of Revolver claims, Term Loan B claims, Original First Lien Notes claims (including the First Lien Committee), the applicable agents, and the Original First Lien Notes trustee shall be deemed to have waived any enforcement of any turnover or payment over rights under the Junior Lien Intercreditor and Subordination Agreement, dated as of March 19, 2018, against the Debtors, Second Lien Notes Trustee, or holders of Original Second Lien Notes claims with respect to certain obligations and amounts;

the Company Parties shall make a $48 million payment to holders of Term Loan B claims, a $9 million payment for the benefit of holders of Original First Lien Notes claims, and, in the event that the Effective Date occurs on or after March 31, 2021, an incremental payment of $8 million to holders of Term Loan B claims, subject to the provisions and conditions of the Plan with respect to such payments;

the Company Parties or the Reorganized Company Parties, as applicable, shall pay in full in cash all reasonable First Lien Committee fees and Second Lien Committee fees that are due and owing under the applicable engagement letters; and

all adequate protection currently in effect shall remain in effect until entry of a final adequate protection order and, upon the Company Parties’ entry into any DIP Facilities, the Bankruptcy Court shall enter a final adequate protection order granting, among other things, adequate protection to secured creditors in the form of (i) liens and claims on all collateral securing any future DIP Facilities, and (ii) cash payments in the amount of accrued interest.

17


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

DIP Financing

As previously disclosed, prior to the commencement of the Chapter 11 Cases, the Company and certain of its domestic subsidiaries entered into that certain Commitment Letter, dated April 14, 2020 (as amended by that certain Letter Agreement, dated April 28, 2020, by that certain Letter Agreement, dated May 12, 2020, by that certain Letter Agreement, dated June 10, 2020, by that certain Letter Agreement, dated June 29, 2020 and as further amended, modified or supplemented from time to time, the Original Commitment Letter) with Goldman Sachs Bank USA (GS Bank), Deutsche Bank AG New York Branch (DBNY), Deutsche Bank Securities Inc. (DBSI and, collectively with DBNY, DB), Barclays Bank PLC (Barclays), Morgan Stanley Senior Funding, Inc. (MSSF), Credit Suisse AG, Cayman Islands Branch (CS) and Credit Suisse Loan Funding LLC (CSLF and, together with CS and their respective affiliates, Credit Suisse, and together with GS Bank, DB, Barclays and MSSF, the Original Commitment Parties), pursuant to which, and subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court, GS Bank, DBNY, Barclays, MSSF and CS committed to provide a portion of the senior secured superpriority revolving credit facility in an aggregate principal amount of $460 million, which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a longer term revolving exit facility. The Original Commitment Letter lapsed in accordance with its terms.

The Company and certain of its domestic subsidiaries entered into a Commitment Letter, dated August 13, 2020, with the Original Commitment Parties, which was amended and restated by that certain Amended and Restated Commitment Letter, dated August 28, 2020, with the Original Commitment Parties and JPM (collectively, the New Commitment Parties), pursuant to which, and subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court, GS Bank, JPM, DBNY, MSSF and CS committed to provide a portion of the $625 million debtor-in-possession (DIP) revolving facility (the DIP Revolving Facility), which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a revolving exit facility maturing four years from the emergence date.

The Company and certain of its domestic subsidiaries also entered into that certain Engagement Letter, dated August 14, 2020, with GS Bank, which was amended and restated by that certain Amended and Restated Engagement Letter, dated August 28, 2020 with the New Commitment Parties, in connection with the DIP term loan facility, which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a term loan exit facility.

On August 28, 2020, the Company Parties filed a motion (the DIP Financing Motion) with the Bankruptcy Court to approve (i) the indentures, credit, guarantee and security documents governing the obligations under senior secured superpriority first lien and/or second lien notes to be issued by the Company or an affiliate thereof, (ii) a DIP revolving facility and the exit revolving facility (the Exit Revolving Facility) it would convert into upon satisfaction of certain conditions, including the effectiveness of the Plan, (iii) a DIP term loan facility and the exit term loan facility it would convert into upon satisfaction of certain conditions, including the effectiveness of the Plan (the Exit Term Loan Facility) and, (iv) if applicable, the reinstated Term Loan B (collectively, the DIP Financing). On September 17, 2020, the Bankruptcy Court entered the final order approving the DIP Financing Motion.

In connection with the DIP Financing, on October 8, 2020, the Company issued $1,150 million aggregate principal amount of 5.875% First Lien Secured Notes due October 15, 2027 (the First Lien Notes due October 2027), and entered into a $625 million DIP Revolving Facility and a $500 million DIP term loan facility (the Initial DIP Term Loan Facility). The Company used the proceeds from the offering of the New First Lien Notes due October 2027, together with the proceeds of the Initial DIP Term Loan Facility and cash on hand, to (i) repay in full our prepetition of $1,650 million aggregate principal amount of the Original First Lien Notes and (ii) pay related interest, fees and expenses.

18


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Also in connection with the DIP Financing, on November 25, 2020, the Company issued $1,550 million aggregate principal amount of 5.000% First Lien Secured Notes due May 1, 2028 (the First Lien Notes due May 2028 and, together with the First Lien Notes due October 2027, the New First Lien Notes) and $1,000 million aggregate principal amount of 6.750% Second Lien Secured Notes due May 1, 2029 (the New Second Lien Notes), and borrowed an incremental $750 million under the DIP term loan facility (the Incremental DIP Term Loan Facility and, together with the Initial DIP Term Loan Facility, the DIP Term Loan Facility). The Company used the proceeds from these issuances and the incremental term loan borrowing, together with cash on hand to (i) repay all outstanding borrowings under our prepetition Term Loan B, (ii) repay in full the $1,600 million aggregate principal amount of our prepetition 8.500% Second Lien Secured Notes due April 1, 2026 (the Original Second Lien Notes), and (iii) pay related interest, fees and expenses incurred in connection therewith.

For more information about the DIP Financing and subsequent events related thereto, refer to Note 10 and Note 19.

Regulatory Approvals

As set forth in the Plan and the Disclosure Statement, in order to implement the restructuring contemplated by the Plan, the Company Parties must satisfy several conditions after confirmation of the Plan but prior to emergence from Chapter 11. Among other things, the Company Parties must obtain requisite regulatory approvals, including FCC and required PUC approvals in certain states. The Company is also the subject of ongoing investigations and reviews, which may lead to the imposition of financial sanctions and/or operational restrictions.

As previously announced, as of April 15, 2021, the Company had received PUC approvals or favorable determinations from all required states. In connection with the approvals, the FCC and certain state PUCs imposed conditions on the approval of the Restructuring Transactions, including commitments to make significant capital and operational expenditures, deploy broadband facilities and improve services.

Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Company Parties may assume, amend, or reject certain executory contracts and unexpired leases with respect to their operations with the approval of the Bankruptcy Court. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Company Parties from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Company Parties to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Company Parties in this document, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease of the Company Parties, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code.

19


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Reorganization Items and Liabilities Subject to Compromise

Effective on April 14, 2020, we began to apply the provisions of ASC 852, Reorganizations (ASC 852), which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of net periodic pension costcertain financial statement line items. ASC 852 requires that the financial statements for periods including and net periodic postretirement benefit cost by requiringafter the filing of the Chapter 11 Cases distinguish transactions and events that an employer disaggregateare directly associated with the service cost component of periodic benefit costRestructuring from the other componentsongoing operations of the business. Expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the Restructuring must be reported separately as reorganization items, net benefit cost. The amendments in the update also provide explicit guidance on how to presentconsolidated statements of operations beginning April 14, 2020, the service cost component and other componentsdate of net benefit cost infiling of the income statement and allow onlyChapter 11 Cases. Liabilities that may be affected by the service cost components of net benefit costPlan must be reported at the amounts expected to be eligibleallowed by the Bankruptcy Court, even if they may be settled for capitalization. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods and requires the presentationlesser amounts as a result of the income statementPlan or negotiations with creditors. The amounts currently classified as liabilities subject to compromise may be applied retrospectively.  subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of secured status of certain claims, the values of any collateral securing such claims, or other events. Any resulting changes in classification will be reflected in subsequent financial statements. If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the Plan, the entire amount of the claim is included with prepetition claims in Liabilities subject to compromise.

As a result of the standard, pension settlement costsfiling of the Chapter 11 Cases on April 14, 2020, the classification of pre-petition indebtedness is generally subject to compromise pursuant to the Plan. Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Company Parties authority to pay certain pre-petition claims in designated categories and subject to certain benefit coststerms and conditions. This relief generally was designed to preserve the value of the Company Parties’ businesses and assets. Among other things, the Bankruptcy Court authorized the Company Parties’ to pay certain pre-petition claims relating to employee wages and benefits, taxes and critical vendors. The Company Parties are paying and intend to pay undisputed post-petition liabilities in the ordinary course of business. In addition, the Company Parties may reject certain pre-petition executory contracts and unexpired leases with respect to their operations with the approval of the Bankruptcy Court. Any damages resulting from the rejection of executory contracts and unexpired leases are treated as general unsecured claims.

The accompanying unaudited condensed consolidated balance sheet as of March 31, 2021 includes amounts classified as Liabilities subject to compromise, which are currently includedrepresent liabilities the Company anticipates will be allowed as claims in operating expense, wouldthe Chapter 11 Cases. These amounts represent the Company's current estimate of known or potential obligations to be reported as other non-operating expense and will no longer be capitalized.  This will have a material impact on previously reported operating incomeresolved in connection with the Chapter 11 Cases and may have a material impact to operating income indiffer from actual future periods, however, the impact to pre-tax income is not expectedsettlement amounts paid. Differences between liabilities estimated and claims filed, or to be material.filed, will be investigated and resolved in connection with the claims resolution process.

20

10


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

Recently Adopted Accounting Pronouncements

Liabilities subject to compromise consisted of the following:

Share-Based Payments - Scope

($ in millions)

March 31, 2021

Accounts payable

$

65 

Other current liabilities

59 

Accounts payable, and other current liabilities

124 

Debt subject to compromise

10,949 

Accrued interest on debt subject to compromise

497 

Long-term debt and accrued interest

11,446 

Liabilities subject to compromise

$

11,570 

Determination of Modification Accounting

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accountingvalue at which amendsliabilities will ultimately be settled cannot be made until the scope of modification accounting for share-based payment arrangements. This standard provides guidance onPlan becomes effective and the types of changesCompany emerges from bankruptcy. The Company will continue to evaluate and adjust the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions,amount and classification of its pre-petition liabilities. Such adjustments may be material. Any additional liabilities that are subject to compromise will be recognized accordingly, and the awards are the same immediately before and after the modification. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods and early adoption is permitted including in any interim period. Frontier has adopted this standard during the second quarter 2017, with no impact to our share-based payment awards.

Intangibles – Goodwill

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” This standard was established to simplify how an entity is required to test goodwill for impairment by eliminating Step 2from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carryingaggregate amount of that goodwill. UnderLiabilities subject to compromise may change.

As set forth in the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entityPlan, “Excess Cash” is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amountestimated unrestricted balance sheet cash in excess of $150 million at the Effective Date, and includes net assets. An entity still hasafter-tax cash proceeds from the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Frontier early adopted this standard during the second quarter of 2017 in conjunction with our goodwill impairment assessment. See Note 1 and Note 6 for further discussion. 

Compensation – Stock Compensation

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” to amend ASC Topic 718, “Compensation – Stock Compensation.” The ASU is partsale of the FASB’s ongoing simplification initiative, which is designedNorthwest Operations (which amount to reduce cost and complexity while maintaining or improving$1,129 million). As disclosed in the usefulnessDebtors’ Plan Supplement, filed on March 1, 2021, the Debtors currently estimate $1,313 million of the information providedExcess Cash to the users of financial statements. The simplifications address a variety of areas for public entities, including the following: 1) accounting for income taxes, 2) classification of excess tax benefits on the statement of cash flows, 3) forfeitures, 4) minimum statutory tax withholding requirements, 5) classifications of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes, and 6) classification of awards with repurchase features. This guidance was effective for Frontierbe available as of the third quarterEffective Date. As set forth in the Plan, on the Effective Date, each of 2017.  During the nine months ended September 30, 2017, Frontier recognized $2 millionDebtors’ senior noteholders shall receive, among other things, its Pro Rata share of income tax expense and recordedinterest in the Debtors’ “Surplus Cash.” Under the Plan, the “Incremental Senior Notes Payments” will be made from Excess Cash, prior to the determination of, and distribution of, Surplus Cash.

Reorganization items incurred as a cumulative effect adjustment to beginning accumulated deficitresult of $1 million to recognize all unrecognized deferred tax benefits recordedthe Chapter 11 Cases presented separately in the accompanying consolidated statements of operations were as of January 1, 2017. For the nine months ended September 30, 2016, Frontier reclassified $10 million of taxes paid on behalf of employees related to shares withheld from “Cash flows provided from (used by) operations” to “Cash flows used by financing activities” in accordancefollows:

For the three months ended

($ in millions)

March 31, 2021

Professional fees and other bankruptcy related costs

$

25 

Reorganization items, net

$

25 

The Company has incurred significant costs associated with the new standard. reorganization, primarily legal and professional fees. Subsequent to the Petition Date, these costs were expensed as incurred and significantly affected our consolidated results of operations.

21

11


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

(3)  Acquisitions:

Emergence and Fresh Start Accounting

The CTF Acquisition

On April 1, 2016, Frontier acquiredUpon emergence from bankruptcy, we expect to adopt fresh start accounting in accordance with ASC 852, Reorganizations. Under fresh start accounting rules, upon the wireline operations of Verizon Communications, Inc. in California, Texas and Florida (the CTF Operations) for a purchase price of $10,540 million in cash and assumed debt (the CTF Acquisition), pursuant to the February 5, 2015 Securities Purchase Agreement, as amended. The final allocationEffective Date of the purchase price presented below represents the effect of recording thePlan (each as defined herein), our assets and liabilities would be adjusted to fair value of assets acquired and liabilities assumed as of the date of the CTF Acquisition, based on the total transaction cash consideration of $9,871 million.

($ in millions)

Current assets

$

353 

Property, plant & equipment

6,096 

Goodwill

2,606 

Other intangibles - primarily customer list

2,262 

Current liabilities

(579)

Long-term debt

(544)

Other liabilities

(323)

Total net assets acquired

$

9,871 

The fair value estimates relatedour accumulated deficit would be restated to the allocation of the purchase price to Other intangibles were revised and updated during the first quarter of 2017 from the previous estimates as of December 31, 2016. The allocation that was reported as of December 31, 2016 for Other intangibles increased $100 million, from $2,162 million to $2,262 million. These measurement period adjustments resultedzero, which we expect will result in $20 million of amortization expense during the first quarter of 2017 that would have been recorded in 2016 if the adjustments had been recognized as of the acquisition date. Othermaterial adjustments to the allocationrecorded value of certain of our assets and liabilities. As a result, we may incur higher depreciation and amortization expense following the Effective Date. In addition, we may adopt accounting policy changes as part of fresh start accounting and such policies could result in material changes to our financial reporting and results. The actual impact of the purchase price forapplication of fresh start accounting and any such accounting policy changes will be determined by management upon and following the CTF Acquisition during the first quarter of 2017 resulted inEffective Date. As a $140 million decrease in Property, plant & equipment, a $61 million increase in Current liabilities, and a $98 million increase in Goodwill.

The total consideration exceeded the net estimated fair valueresult of the assets acquiredapplication of fresh start accounting and liabilities assumed by $2,606 million, whichthe effects of the implementation of the Plan, we recognizedexpect that our financial condition and results of operations following the emergence from Chapter 11 will not be comparable to the financial condition and results of operations reflected in our historical financial statements.

(4) Revenue Recognition:

We categorize our products, services and other revenues into the following categories:

Data and Internet services include broadband services for residential and business customers. We provide data transmission services to high volume business customers and other carriers with dedicated high capacity circuits (“nonswitched access”) including services to wireless providers (wireless backhaul);

Voice services include traditional local and long-distance wireline services, Voice over Internet Protocol (VoIP) services, as goodwill. This goodwill is attributablewell as a number of unified messaging services offered to strategic benefits, including enhanced financialour residential and operational scale, market diversificationbusiness customers. Voice services also include the long-distance voice origination and leveraged combined networkstermination services that we expectprovide to realize. This amountour business customers and other carriers;

Video services include revenues generated from services provided directly to consumer customers as linear terrestrial television services, and through Dish® satellite TV service;

Other customer revenue includes switched access revenue, sales of goodwill associatedcustomer premise equipment to our business customers, rents collected for collocation services, and revenue from other services and fees. Switched access revenue includes revenues derived from allowing other carriers to use our network to originate and/or terminate their local and long-distance voice traffic (switched access). These services are primarily billed on a minutes-of-use basis applying tariffed rates filed with the CTF Acquisition will be deductible for income tax purposes.FCC or state agencies; and

Subsidy and other regulatory revenue includes revenues generated from cost subsidies from state and federal authorities, including the Connect America Fund Phase II.

1222


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

The following unaudited pro forma financial information presentstables provide a summary of revenues, by category. Prior year revenues in the combined results of operations of Frontier andfollowing tables include revenues for the CTFNorthwest Operations as iffor the CTF Acquisition had occurred as of January 1, 2016. The pro forma information is not necessarily indicative of what the financial position or results of operations actually would have been had the CTF Acquisition been completed as of January 1, 2016. In addition, the unaudited pro forma financial information is not indicative of, nor does it purportthree months ended March 31, 2020 (prior to project, the future financial position or operating results of Frontier. The unaudited pro forma financial information excludes acquisition and integration costs and does not give effect to any estimated and potential cost savings or other operating efficiencies that may result from the CTF Acquisitionits disposal):

(Unaudited)

For the nine months ended

($ in millions, except per share amounts)

September 30, 2016

Revenue

7,846 

Operating income

1,129 

Net loss attributable to Frontier common shareholders

(164)

Basic and diluted net loss per share attributable

to Frontier common shareholders

(2.10)

For the three months ended March 31,

($ in millions)

2021

2020

Data and Internet services

$

842 

$

932 

Voice services

487 

572 

Video services

169 

222 

Other

95 

117 

Revenue from contracts with customers (1)

1,593 

1,843 

Subsidy and other revenue

83 

90 

Total revenue

$

1,676 

$

1,933 

For the three months ended March 31,

($ in millions)

2021

2020

Consumer

$

844 

$

971 

Commercial

749 

872 

Revenue from contracts with customers (1)

1,593 

1,843 

Subsidy and other revenue

83 

90 

Total revenue

$

1,676 

$

1,933 

Acquisition and Integration Costs

Acquisition costs include financial advisory, accounting, regulatory, legal and other related costs. Integration costs include expenses that are incremental and directly related to the acquisition, which were incurred to integrate the network and information technology platforms.  Integration costs also include costs to achieve synergies and operational efficiencies directly associated with the acquisition. 

Frontier incurred operating expenses related to the CTF Acquisition as follows:



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

For the nine months ended September 30,

($ in millions)

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Acquisition costs

 

$

 -

 

$

 -

 

$

 -

 

$

23 

Integration costs

 

 

 

 

122 

 

 

15 

 

 

364 

Total acquisition and

 

 

 

 

 

 

 

 

 

 

 

 

integration costs

 

$

 

$

122 

 

$

15 

 

$

387 



 

 

 

 

 

 

 

 

 

 

 

 

We also invested $19(1)Includes approximately $16 million and $99$17 million in capital expenditures related toof lease revenue for the CTF Acquisition during the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively.

23

13


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED(DEBTOR-IN-POSSESSION)

(Unaudited)

The following is a summary of the changes in the contract assets and contract liabilities:

Contract Assets

Contract Liabilities

($ in millions)

Current

Noncurrent

Current

Noncurrent

Balance at December 31, 2020

$

$

$

58 

$

20 

Revenue recognized included

in opening contract balance

(4)

-

(17)

(2)

Cash received, excluding amounts

recognized as revenue

-

-

17 

Balance at March 31, 2021

$

$

$

58 

$

19 

Contract Assets

Contract Liabilities

($ in millions)

Current

Noncurrent

Current

Noncurrent

Balance at December 31, 2019

$

37 

$

$

41 

$

21 

Revenue recognized included

in opening contract balance

(9)

-

(21)

(4)

Cash received, excluding amounts

recognized as revenue

-

-

25 

Credits granted, excluding amounts

recognized as revenue

-

-

-

Reclassified between current

and noncurrent

-

-

(1)

Balance at March 31, 2020

$

29 

$

$

46 

$

21 

Short-term contract assets, Long-term contract assets, Short-term contract liabilities, and Long-term contract liabilities are included in other current assets, other assets, other current liabilities, and other liabilities, respectively, on our consolidated balance sheets.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:

($ in millions)

Revenue from contracts with customers

2021 (remaining nine months)

$

1,091 

2022

712 

2023

316 

2024

110 

2025

62 

Thereafter

128 

Total

$

2,419 

24


PART I. FINANCIAL STATEMENTS (Unaudited)INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(4)(5) Accounts Receivable:

The components of accounts receivable, net are as follows:



 

 

 

 

 

 



 

 

 

 

 

 

   ($ in millions)

 

September 30, 2017

 

December 31, 2016

    

 

 

 

 

 

 

Retail and wholesale

 

$

768 

 

$

979 

Other

 

 

81 

 

 

90 

Less: Allowance for doubtful accounts

 

 

(69)

 

 

(131)

Accounts receivable, net

 

$

780 

 

$

938 

   ($ in millions)

March 31, 2021

December 31, 2020

    

Retail and wholesale

$

592 

$

608 

Other

75 

75 

Less: Allowance for doubtful accounts

(148)

(130)

Accounts receivable, net

$

519 

$

553 

We maintain an allowance for doubtful accounts based on our estimate of ourthe estimated ability to collect accounts receivable. During 2017, we resolved settlementsThe allowance for doubtful accounts is increased for retail customers by recording bad debt expense and for wholesale customers through decreases to revenue at the time of billing. The allowance is decreased when customer accounts are written off, or when customers are given credits.

The ending balances in the allowance account as of March 31, 2021 and December 31, 2020 were elevated as a result of ongoing billing disputes with carriers resultingsome of our wholesale customers. As of March 31, 2021, our accounts receivable balance included $128 million of disputed amounts that are expected to be settled in a reductionthe short term. We have established $96 million in reserves related to our reserves of approximately $35 million. these balances as well as other amounts that were previously paid, which reflects the current expected outcome from settlement negotiations.

Bad debt expense (credits), which is recorded as a reduction to revenue, wasis as follows:

For the three months ended March 31,

($ in millions)

2021

2020

Bad debt expense

$

10 

$

14 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

For the nine months ended September 30,

($ in millions)

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Bad debt expense

 

$

26 

 

$

56 

 

$

83 

 

$

104 

 

 

 

 

 

 

 

 

 

 

 

(5)  (6) Property, Plant and Equipment:

Property, plant and equipment, net is as follows:



 

 

 

 

 

 



 

 

 

 

 

 

($ in millions)

 

September 30, 2017

 

December 31, 2016

    

 

 

 

 

 

 

Property, plant and equipment

 

$

26,124 

 

$

25,541 

Less:  Accumulated depreciation

 

 

(11,749)

 

 

(10,639)

Property, plant and equipment, net

 

$

14,375 

 

$

14,902 

($ in millions)

March 31, 2021

December 31, 2020

    

Property, plant and equipment

$

28,040 

$

27,695 

Less: Accumulated depreciation

(15,053)

(14,764)

Property, plant and equipment, net

$

12,987 

$

12,931 

25


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Depreciation expense is principally based on the composite group method. Depreciation expense was as follows:

For the three months ended March 31,

($ in millions)

2021

2020

Depreciation expense

$

308 

$

316 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

For the nine months ended September 30,

($ in millions)

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

376 

 

$

323 

 

$

1,131 

 

$

1,009 



 

 

 

 

 

 

 

 

 

 

 

 

We adopted newrevised the estimated remaining useful lives for certain plant assets as of October 1, 2016,2020, as a result of an annual independent study of the estimated remaining useful lives of our plant assets, with an insignificant impact to depreciation expense.

In 2017, we sold certain properties,  generating $102  million in net proceeds, of which $97 million relates to property subject to leasebacks.  For these properties, we have deferred $66 million in related gains that will be amortized over the related lease terms of two years. For the nine months ended September 30, 2017, amortization of these deferred gains totaled $14 million, which are included in “Selling, general and administrative expenses” on our consolidated income statement. We have remaining deferred gain balances of $52  million,  which are included in “Other liabilities”. 

14


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(6)  Goodwill and (7) Other Intangibles:

The activity in goodwill from January 1, 2017 to September 30, 2017 was as follows

($ in millions)

Balance at January 1, 2017

$

9,674 

CTF Acquisition adjustments

98 

Impairment

(670)

Balance at September 30, 2017

$

9,102 

We are required to perform impairment tests related to our goodwill annually, which we perform as of December 31, or sooner if an indicator of impairment occurs. Due to the continued decline in our stock price we had triggering events in each of the three quarters in 2017.

We use a market multiples approach to determine fair value. Marketplace company comparisons and analyst reports within the telecommunications industry have historically supported a range of fair values of multiples between 5.0x and 7.9x annualized EBITDA (defined as operating income, net of acquisition and integration costs, pension/OPEB expense, pension settlement costs, stock-based compensation expense,  goodwill impairment, storm-related costs, and restructuring costs and other charges, as well as depreciation and amortization). We estimated the enterprise fair value using a multiple of 5.8x EBITDA.

Our second quarter quantitative assessment indicated that the carrying value of the enterprise exceeded its fair value and, therefore, an impairment existed, principally due to the decline in our profitability during the second quarter of 2017. We elected to early adopt the simplified goodwill method under ASU 2017-04, and recorded our goodwill impairment based on the amount that the enterprise carrying value exceeded the fair value, which resulted in a goodwill impairment of $670 million. 

Our first and third quarter quantitative assessments indicated that the fair value of the enterprise exceeded its carrying value and, therefore, no indication of impairment existed in either period.

The market multiples approach that we use incorporates significant estimates and assumptions related to the forecasted results for the remainder of the year including revenues, expenses, and the achievement of other cost synergies. Our assessment includes many qualitative factors that require significant judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the need for, or size of, an impairment. Continued declines in our profitability or cash flows or in the sustained, historically low trading prices of our common stock may result in further impairment.

We also considered whether the carrying values of finite-lived intangible assets and property plant and equipment may not be recoverable or whether the carrying value of certain indefinite-lived intangible assets were impaired, noting no additional impairment was present as of September 30, 2017.

15


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The components of other intangibles are as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

September 30, 2017

 

December 31, 2016



 

Gross Carrying

 

Accumulated

 

Net Carrying

 

Gross Carrying

 

Accumulated

 

Net Carrying

($ in millions)

 

Amount

 

Amortization

 

Amount

 

Amount

 

Amortization

 

Amount

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer base

 

$

5,188 

 

$

(3,137)

 

$

2,051 

 

$

5,088 

 

$

(2,604)

 

$

2,484 

Trade name

 

 

122 

 

 

 -

 

 

122 

 

 

122 

 

 

 -

 

 

122 

Royalty agreement

 

 

72 

 

 

(22)

 

 

50 

 

 

72 

 

 

(16)

 

 

56 

Total other intangibles

 

$

5,382 

 

$

(3,159)

 

$

2,223 

 

$

5,282 

 

$

(2,620)

 

$

2,662 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

December 31, 2020

Gross Carrying

Accumulated

Net Carrying

Gross Carrying

Accumulated

Net Carrying

($ in millions)

Amount

Amortization

Amount

Amount

Amortization

Amount

    

Other Intangibles:

Customer base

$

4,332 

$

(3,856)

$

476 

$

4,332 

$

(3,781)

$

551 

Trade name

122 

-

122 

122 

-

122 

Royalty agreement

72 

(72)

-

72 

(68)

Total other intangibles

$

4,526 

$

(3,928)

$

598 

$

4,526 

$

(3,849)

$

677 

Amortization expense was as follows:

For the three months ended

March 31,

($ in millions)

2021

2020

Amortization expense

$

79 

$

99 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

For the nine months ended September 30,

($ in millions)

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Amortization expense

 

$

163 

 

$

255 

 

$

539 

 

$

460 



 

 

 

 

 

 

 

 

 

 

 

 

Amortization expense primarily represents the amortization of our customer base acquired as a result of the CTF Acquisition, the acquisition of AT&T wireline propertiesour acquisitions in Connecticut in2010, 2014, and the acquisition of certain Verizon properties in 20102016 with each based on a useful life of 8 to 12 years and amortized on an accelerated method. Our Trade name is an indefinite-lived intangible asset that is not subject to amortization.

(7) 

26


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(8) Divestiture of Northwest Operations:

On May 1, 2020, Frontier completed the sale of its Northwest Operations pursuant to the terms and conditions of the Purchase Agreement, dated as of May 28, 2019, for gross proceeds of $1,352 million, subject to certain closing adjustments. Net of funding certain pension and other retiree medical liabilities, funding of indebtedness, funding certain escrows and other closing adjustments, we received $1,131 million in proceeds.

A portion of the proceeds from the sale are held in escrow as recourse for indemnity claims that may arise under the purchase agreement for a period of one year after the sale completion date. As of March 31, 2021, there were $27 million of proceeds held in escrow accounts included in Other current assets. The amounts in escrow will be reviewed and unclaimed amounts released after one year from the completion of the sale. Proceeds previously held in escrow related to employee liabilities of $25 million and adjustments to working capital of $5 million were received by the Company in the first quarter of 2021.

In connection with the sale, Frontier entered into an agreement to perform certain transition services for the purchaser. The first six months of these services were generally being provided at no additional cost to the purchaser as a condition of the transaction. The fair value of these transition services was estimated to be $30 million and were recorded as a deferred liability (recorded within the Advanced Billing financial statement caption in the balance sheet) in connection with the transaction, which amount was amortized to other revenue as the related services were delivered. Effective October 31, 2020, the purchaser terminated all future services that Frontier would have provided and received compensation under this agreement. In connection with the termination, Frontier agreed to provide limited training and subject matter support services for a fee, primarily during the fourth quarter of 2020.

The Northwest Operations were included in Frontier’s continuing operations and classified as assets held for sale and liabilities related to assets held for sale on our consolidated balance sheets through the completion of the transaction on May 1, 2020. As a result of the closing of the transaction, we derecognized net assets of $1,132 million, including property, plant, and equipment of $1,084 million, goodwill of $658 million, a $603 million valuation allowance on our assets held for sale, and $150 million of defined benefit pension and other postretirement benefit plan obligations, net of transferred pension plan assets.

This transaction did not represent a strategic shift for Frontier; therefore, it did not meet the criteria to be classified as a discontinued operation. Effective with the designation as held-for-sale on May 28, 2019, we discontinued recording depreciation on Property, Plant and Equipment and finite-lived intangible assets of this business as required by GAAP.

During the three months ended March 31, 2020, Frontier recorded a loss on disposal of $24 million, associated with the sale of the Northwest Operations.

27


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(9) Fair Value of Financial Instruments:

The following table summarizes the carrying amounts and estimated fair values for long-term debt at September 30, 2017March 31, 2021 and December 31, 2016.2020. For the other financial instruments including cash, accounts receivable, long-term debt due within one year,restricted cash, accounts payable and other current liabilities, the carrying amounts approximate fair value due to the relatively short maturities of those instruments.

The fair value of our long-term debt (including $10,949 million of debt classified in Liabilities subject to compromise at March 31, 2021) is estimated based upon quoted market prices at the reporting date for those financial instruments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

December 31, 2020

($ in millions)

 

 

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

17,604 

 

$

15,515 

 

$

17,560 

 

$

17,539 

Total debt

$

16,769 

$

13,354 

$

16,769 

$

11,635 

(8)(

(10) Long-Term Debt:

The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our then-outstanding obligations under the JPM Credit Agreement, the Original First Lien Notes, the Original Second Lien Notes, our unsecured notes and debentures and the secured and unsecured debentures of our subsidiaries. As such we have reclassified certain subsidiary unsecured and certain secured debt obligations to Long term debt due within one year and certain parent unsecured debt obligations to Liabilities subject to compromise on our consolidated balance sheet as of March 31, 2021. While this reclassification includes all of our debt, the Restructuring Support Agreement contemplates agreed-upon terms for a pre-arranged financial restructuring Plan that leaves unimpaired all holders of secured debt and subsidiary debt. Among other things, the Restructuring Support Agreement provides that holders of our secured debt will be entitled to receive cash interest payments and to have the principal amount of their indebtedness repaid or reinstated upon emergence and that holders of secured and unsecured debt of our subsidiaries will be entitled to receive cash interest payments and to have the principal amount of their indebtedness reinstated upon emergence.

Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against or on behalf of the Company Parties, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company Parties’ property.

For information related to the court approved and confirmed plan of reorganization, the Chapter 11 Cases, the Plan and the DIP Financing, refer to Note 3.

1628


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

(8)  Long-Term Debt

The activity in our long-term debt from January 1, 2017 through September 30, 2017 is summarized as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

  

  

 

 

  

  

  

 

  

 

  

  

 

Nine months ended September 30, 2017

  

  

 

 

  

 

 

  

 

 

 

 

  

 

 

 

($ in millions)

 

January 1, 2017

 

Payments and Retirements

 

New Borrowings

 

September 30, 2017

 

Interest Rate at
September 30, 2017*

  

 

  

  

  

 

 

 

 

 

  

  

 

  

 

Senior and Subsidiary Unsecured Debt

 

$

15,900 

 

$

(1,544)

 

$

 -

 

 $

14,356 

 

9.22%

Senior Secured Debt

 

 

2,151 

 

 

(114)

 

 

1,500 

 

 

3,537 

 

4.90%

Secured Subsidiary Debt

 

 

100 

 

 

 -

 

 

 -

 

 

100 

 

8.50%

Other Secured Debt

 

 

19 

  

 

(3)

 

 

 -

  

 

16 

 

5.25%

Rural Utilities Service Loan Contracts

 

 

 

 

(1)

 

 

 -

 

 

 

6.15%

Total Long-Term Debt

 

$

18,178 

 

 $

(1,662)

 

 $

1,500 

 

$

18,016 

 

8.36%

  

 

  

  

  

 

 

 

 

 

  

  

  

  

 

  Less: Debt Issuance Costs

 

 

(209)

  

 

 

 

 

 

  

 

(190)

 

 

  Less: Debt Premium/(Discount)

 

 

(46)

 

 

 

 

 

 

 

 

(56)

 

 

  Less: Current Portion

 

 

(363)

  

 

 

 

 

 

  

 

(166)

 

 



 

$

17,560 

  

 

 

 

 

 

  

$

17,604 

 

 

  

 

  

  

  

 

 

 

 

 

  

  

  

  

 

  

  

For the three months ended
March 31, 2021

  

Principal

Interest Rate at

January 1,

Payments

New

March 31,

March 31,

($ in millions)

2021

and Retirements

Borrowings

2021

2021*

  

  

  

  

  

Secured debt issued by Frontier

$

4,964

$

-

$

-

$

4,964

5.75%

Unsecured debt issued by Frontier

10,949

-

-

10,949

9.19%

Secured debt issued by subsidiaries

106

-

-

106

8.37%

Unsecured debt issued by subsidiaries

750

-

-

750

6.90%

Debt prior to reclassification to

liabilities subject to compromise

$

16,769

$

-

$

-

$

16,769

8.07%

  

  

  

  

  

  

Less: Debt Issuance Costs

-

  

-

Less: Debt Discount

(39)

(38)

Debt, less unamortized debt

issuance costs and discounts

16,730

16,731

Less: Current Portion

(5,781)

  

(5,782)

Less: Debt subject to compromise

(10,949)

(10,949)

Total Long-term debt

$

-

  

$

-

  

  

  

  

  

  

* Interest rate includes amortization of debt issuance costs and debt premiums or discounts. The interest rates at September 30, 2017March 31, 2021 represent a weighted average of multiple issuances.


1729


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

Additional information regarding our seniorsecured and unsecured long-term debt senior secured debtas of March 31, 2021 and subsidiary debtDecember 31, 2020 is as follows:



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

September 30, 2017

 

December 31, 2016



 

 

 

 

 

 

 

 

 

 



 

Principal

 

Interest

 

Principal

 

Interest

($ in millions)

 

Outstanding

 

Rate

 

Outstanding

 

Rate



 

 

 

 

 

 

 

 

 

 

Senior Unsecured Debt Due:

 

 

 

 

 

 

 

 

 

 

4/15/2017

 

$

 -

 

8.250%

 

$

210 

 

8.250%

10/1/2018

 

 

578 

 

8.125%

 

 

583 

 

8.125%

3/15/2019

 

 

428 

 

7.125%

 

 

434 

 

7.125%

4/15/2020

 

 

619 

 

8.500%

 

 

1,169 

 

8.500%

9/15/2020

 

 

303 

 

8.875%

 

 

1,066 

 

8.875%

7/1/2021

 

 

490 

 

9.250%

 

 

500 

 

9.250%

9/15/2021

 

 

775 

 

6.250%

 

 

775 

 

6.250%

4/15/2022

 

 

500 

 

8.750%

 

 

500 

 

8.750%

9/15/2022

 

 

2,188 

 

10.500%

 

 

2,188 

 

10.500%

1/15/2023

 

 

850 

 

7.125%

 

 

850 

 

7.125%

4/15/2024

 

 

750 

 

7.625%

 

 

750 

 

7.625%

1/15/2025

 

 

775 

 

6.875%

 

 

775 

 

6.875%

9/15/2025

 

 

3,600 

 

11.000%

 

 

3,600 

 

11.000%

11/1/2025

 

 

138 

 

7.000%

 

 

138 

 

7.000%

8/15/2026

 

 

 

6.800%

 

 

 

6.800%

1/15/2027

 

 

346 

 

7.875%

 

 

346 

 

7.875%

8/15/2031

 

 

945 

 

9.000%

 

 

945 

 

9.000%

10/1/2034

 

 

 

7.680%

 

 

 

7.680%

7/1/2035

 

 

125 

 

7.450%

 

 

125 

 

7.450%

10/1/2046

 

 

193 

 

7.050%

 

 

193 

 

7.050%



 

 

13,606 

 

 

 

 

15,150 

 

 

Senior Secured Debt Due:

 

 

 

 

 

 

 

 

 

 

10/24/2019 (1)

 

 

254 

 

5.115% (Variable)

 

 

280 

 

4.145% (Variable)

3/31/2021 (2)

 

 

1,503 

 

3.990% (Variable)

 

 

1,564 

 

3.270% (Variable)

10/12/2021 (3)

 

 

284 

 

5.115% (Variable)

 

 

307 

 

4.145% (Variable)

6/15/2024 (4)

 

 

1,496 

 

4.990% (Variable)

 

 

 -

 

 



 

 

3,537 

 

 

 

 

2,151 

 

 



 

 

 

 

 

 

 

 

 

 

Subsidiary Debt Due:

 

 

 

 

 

 

 

 

 

 

05/15/2027

 

 

200 

 

6.750%

 

 

200 

 

6.750%

02/01/2028

 

 

300 

 

6.860%

 

 

300 

 

6.860%

  2/15/2028

 

 

200 

 

6.730%

 

 

200 

 

6.730%

  10/15/2029

 

 

50 

 

8.400%

 

 

50 

 

8.400%

11/15/2031

 

 

100 

 

8.500%

 

 

100 

 

8.500%



 

 

850 

 

 

 

 

850 

 

 



 

 

 

 

 

 

 

 

 

 

Total

 

$

17,993 

 

8.1% (5)

 

$

18,151 

 

8.3% (5)

March 31, 2021

December 31, 2020

Principal

Interest

Principal

Interest

($ in millions)

Outstanding

Rate

Outstanding

Rate

Secured debt issued by Frontier

DIP-to-Exit term loan due 10/8/2027

$

1,250 

5.750% (Variable)

$

1,250 

5.750% (Variable)

DIP-to-Exit First lien notes due 10/15/2027

1,150 

5.875%

1,150 

5.875%

DIP-to-Exit First lien notes due 5/1/2028

1,550 

5.000%

1,550 

5.000%

DIP-to-Exit Second lien notes due 5/1/2029

1,000 

6.750%

1,000 

6.750%

IDRB due 5/1/2030

14 

6.200%

14 

6.200%

Secured debt issued by Frontier

4,964 

4,964 

Unsecured debt issued by Frontier

Senior notes due 4/15/2020

172 

8.500%

172 

8.500%

Senior notes due 9/15/2020

55 

8.875%

55 

8.875%

Senior notes due 7/1/2021

89 

9.250%

89 

9.250%

Senior notes due 9/15/2021

220 

6.250%

220 

6.250%

Senior notes due 4/15/2022

500 

8.750%

500 

8.750%

Senior notes due 9/15/2022

2,188 

10.500%

2,188 

10.500%

Senior notes due 1/15/2023

850 

7.125%

850 

7.125%

Senior notes due 4/15/2024

750 

7.625%

750 

7.625%

Senior notes due 1/15/2025

775 

6.875%

775 

6.875%

Senior notes due 9/15/2025

3,600 

11.000%

3,600 

11.000%

Debentures due 11/1/2025

138 

7.000%

138 

7.000%

Debentures due 8/15/2026

6.800%

6.800%

Senior notes due 1/15/2027

346 

7.875%

346 

7.875%

Senior notes due 8/15/2031

945 

9.000%

945 

9.000%

Debentures due 10/1/2034

7.680%

7.680%

Debentures due 7/1/2035

125 

7.450%

125 

7.450%

Debentures due 10/1/2046

193 

7.050%

193 

7.050%

Unsecured debt issued by Frontier

10,949 

10,949 

Secured debt issued by subsidiaries

Debentures due 11/15/2031

100 

8.500%

100 

8.500%

RUS loan contracts due 1/3/2028

6.154%

6.154%

Secured debt issued by subsidiaries

106 

106 

Unsecured debt issued by subsidiaries

Debentures due 5/15/2027

200 

6.750%

200 

6.750%

Debentures due 2/1/2028

300 

6.860%

300 

6.860%

Debentures due 2/15/2028

200 

6.730%

200 

6.730%

Debentures due 10/15/2029

50 

8.400%

50 

8.400%

Unsecured debt issued by subsidiaries

750 

750 

Debt prior to reclassification to

liabilities subject to compromise

16,769 

8.188% (1)

16,769 

8.188% (1)

Less: debt subject to compromise

(10,949)

(10,949)

Total debt

$

5,820 

5.944% (1)

$

5,820 

5.944% (1)

(1)  Represents borrowings under the 2014 CoBank Credit Agreement, as defined below.

(2)  Represents borrowings under the JPM Credit Agreement Term Loan A, as defined below.

(3)  Represents borrowings under the 2016 CoBank Credit Agreement, as defined below.

(4)  Represents borrowings under the JPM Credit Agreement Term Loan B, as defined below.

(5) Interest rate represents a weighted average of the stated interest rates of multiple issuances.

30

18


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED(DEBTOR-IN-POSSESSION)

(Unaudited)

DIP Financing

On August 28, 2020, the Company Parties filed the DIP Financing Motion with the Bankruptcy Court to approve the DIP Financing. On September 17, 2020, the Bankruptcy Court entered the final order approving the DIP Financing Motion.

DIP Revolving Facility

On October 8, 2020, Frontier entered into the DIP Revolving Facility, pursuant to the senior secured superpriority debtor-in-possession credit agreement, dated as of October 8, 2020, by and among Frontier, as the borrower, GS Bank, as administrative agent and collateral agent, and each lender and issuing bank from time to time party thereto.

The DIP Revolving Facility has a maturity of the earlier of (x) the date that is twelve months after the closing date of the DIP Revolving Facility and (y) the date of the substantial consummation of the Plan; provided that to the extent such substantial consummation has not occurred on or prior to the date referred to in the foregoing clause (x), primarily because any condition precedent set forth therein with respect to the procurement of regulatory approvals has not been satisfied (and other than any other conditions that by their nature can only be satisfied on the consummation date), the maturity date shall be extended by an additional six months.

At our election, the determination of interest rates for the DIP Revolving Facility is based on margins over the alternate base rate or over LIBOR. The interest rate with respect to any LIBOR loan is 3.250% (or 2.250% for alternate base rate loans).

Subject to customary exceptions and thresholds, the security package under the DIP Revolving Facility includes pledges of the equity interests in certain of our subsidiaries, which as of the issue date is limited to certain specified pledged entities, substantially all personal property of Frontier Video Services Inc., a Delaware corporation (Frontier Video), and, solely prior to the conversion date, substantially all of the unencumbered assets and properties (the DIP Collateral) of Frontier and Frontier Communications of Iowa, LLC, an Iowa limited liability company (Frontier Iowa), which such security interest in the DIP Collateral was granted solely pursuant to the DIP financing order issued by the Bankruptcy Court, which same assets also secure the New First Lien Notes. The DIP Revolving Facility is guaranteed by the same subsidiaries that guarantee the New First Lien Notes. After giving effect to $90 million of letters of credit formerly outstanding under the Revolver that were rolled into, replaced or otherwise accommodated for under the DIP Revolving Facility, the Company has $535 million of available borrowing capacity under the DIP Revolving Facility.

The DIP Revolving Facility includes usual and customary negative covenants for loan agreements of this type, including covenants limiting Frontier and its restricted subsidiaries’ (other than certain covenants therein which are limited to subsidiary guarantors) ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and acquisitions, pay dividends and distributions and make payments in respect of certain material payment subordinated indebtedness, in each case subject to customary exceptions for loan agreements of this type.

The DIP Revolving Facility also includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under ERISA, change of control or damage to a material portion of the collateral.

31


PART I. FINANCIAL STATEMENTS (Unaudited)INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

In September 2017, Frontier used proceeds fromUpon the conversion date, subject to certain conditions, the DIP Revolving Facility shall convert into the Exit Revolving Facility with an aggregate principal amount of $625 million. The Exit Revolving Facility will be available on a revolving basis during the period commencing on the conversion date and ending on the date that is 4 years after the conversion date. The determination of interest rates for the Exit Revolving Facility is based on margins over the alternate base rate or over LIBOR, at our election. The interest rate with respect to any LIBOR loan is 3.500% (or 2.500% for alternate base rate loans).

DIP Term Loan B (see definition and note discussion below) to retire $24 million of 8.500% Notes dueFacility

On October 8, 2020, $10 million of 9.250% Notes due 2021, $6 million of 7.125% Notes due 2019, and $5 million of 8.125% Notes due 2018.  Frontier recorded a gain of $1 million driven primarily by discounts on the retirement of the notes. On April 17, 2017, Frontier used cash available on hand to retire $210 million of 8.25% Senior Notes that matured on such date.

In June 2017, Frontier used cash proceeds from Term Loan B (see definition and note discussion below) to retire $763 million of 8.875% Notes due 2020 and $527 million of 8.500% Notes due 2020. Frontier recorded a loss on early extinguishment of debt of $90 million driven by premiums paid to retire the notes and unamortized original issuance costs.

On February 27, 2017, Frontier entered into a $500 million DIP Term Loan Facility, pursuant to the credit agreement, dated as of October 8, 2020 (the DIP to Exit Term Credit Agreement), by and among Frontier, as the borrower, JPM, as administrative agent and collateral agent and each lender from time to time party thereto. On November 25, 2020, Frontier entered into an incremental facility amendment No. 1 to the DIP to Exit Term Credit Agreement, which provides for an additional senior secured superpriority DIP term loan facility in the aggregate principal amount of $750 million (the Incremental DIP Term Loan Facility and, together with the Initial DIP Term Loan Facility, the DIP Term Loan Facility). On April 14, 2021, the Company entered into a Refinancing and Incremental Facility Amendment No. 2 (the “Refinancing and Incremental Amendment”). Pursuant to the Refinancing and Incremental Amendment, JPM agreed to provide, subject to certain conditions, including emergence from the Chapter 11 Cases, an incremental exit term loan facility in an aggregate principal amount of $225 million (the “New Incremental Commitment” and the loans borrowed thereunder, the “New Incremental Term Loans”). See Note 19.

The DIP Term Loan Facility has a maturity of the earlier of (x) the date that is twelve months after the closing date of the DIP Term Loan Facility and (y) the date of the substantial consummation of the Plan; provided that to the extent such substantial consummation has not occurred on or prior to the date referred to in the foregoing clause (x), primarily because any condition precedent set forth therein with respect to the procurement of regulatory approvals has not been satisfied (and other than any other conditions that by their nature can only be satisfied on the consummation date), the maturity date shall be extended by an additional six months; provided that if the conversion date has occurred, the maturity date shall be the seventh anniversary of the closing date.

At our election, the determination of interest rates for the DIP Term Loan Facility are based on margins over the alternate base rate or over LIBOR. Pursuant to the Refinancing and Incremental Amendment, the interest rate with respect to any LIBOR loan is 3.75% or 2.75% for alternate base rate loans, with a 0.75% LIBOR floor. See Note 19.

Subject to certain exceptions and thresholds, the security package under the DIP Term Loan Facility includes pledges of the equity interests in certain of our subsidiaries, which as of the issue date is limited to certain specified pledged entities, substantially all personal property of Frontier Video and substantially all of the unencumbered assets and properties of Frontier and Frontier Iowa, which such security interest in the unencumbered assets and properties was granted solely pursuant to the DIP financing order issued by the Bankruptcy Court, which same assets also secure the New First Lien Notes. The DIP Term Loan Facility is guaranteed by the same subsidiaries that guarantee the New First Lien Notes. Upon the conversion date, the security package will no longer include the DIP Collateral.

The DIP Term Loan Facility includes usual and customary negative covenants for DIP to exit loan agreements of this type, including covenants limiting Frontier and its restricted subsidiaries’ (other than certain covenants therein which are limited to subsidiary guarantors) ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and acquisitions, pay dividends and distributions and make payments in respect of certain material payment subordinated indebtedness, in each case subject to customary exceptions for exit loan agreements of this type.

32


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

The DIP Term Loan Facility also includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under ERISA, upon the conversion date, unstayed judgments in favor of a third party involving an aggregate liability in excess of a certain threshold, change of control, upon the conversion date, specified governmental actions having a material adverse effect or condemnation or damage to a material portion of the collateral.

Upon the conversion date, subject to certain conditions, the DIP Term Loan Facility shall convert into the Exit Term Loan Facility with an aggregate principal amount of $1,250 million. On April 14, 2021, the Company entered into a Refinancing and Incremental Facility Amendment No. 2 (the “Refinancing and Incremental Amendment”), providing for an incremental exit term loan facility in an aggregate principal amount of $225 million. Refer to Note 19 for more details related to this amendment.

First Lien Notes due October 2027

On October 8, 2020, Frontier issued $1,150 million aggregate principal amount of the First Lien Notes due October 2027. Interest on the First Lien Notes due October 2027 is payable to holders of record semi-annually in arrears on April 15 and October 15 of each year, commencing April 15, 2021.

The notes were issued pursuant to an indenture, dated as of October 8, 2020 (the 2027 First Lien Indenture), by and among Frontier, the guarantors party thereto, the grantor party thereto, JPMorgan Chase Bank N.A., as collateral agent and Wilmington Trust, National Association, as trustee, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.

Prior to the conversion date, the First Lien Notes due October 2027 are secured on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility and the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility. From the conversion date, the First Lien Notes due October 2027 are secured on a first-priority basis and pari passu with its senior secured credit facilities, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities on a first-priority basis and pari passu with its senior secured credit facilities.

Frontier may redeem the First Lien Notes due October 2027 at any time, in whole or in part, prior to their maturity. If the notes are redeemed before October 15, 2023 the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date, plus a make-whole premium. If the notes are redeemed on or after October 15, 2023 the redemption price will be equal to the amounts set forth in the 2027 First Lien Indenture, together with any accrued and unpaid interest to the redemption date. In addition, at any time before October 15, 2023, Frontier may redeem up to 40% of the First Lien Notes due October 2027 using the proceeds of certain equity offerings at a redemption price equal to 105.875% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.

In the event of a change of control triggering event, each holder of First Lien Notes due October 2027 will have the right to require Frontier to purchase the notes at a purchase price equal to 101% of the principal amount of the First Lien Notes due October 2027, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

33


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

The 2027 First Lien Indenture contains customary negative covenants, subject to a number of important exceptions and qualifications, including, without limitation, covenants related to incurring additional debt and issuing preferred stock; incurring or creating liens; redeeming and/or prepaying certain debt; paying dividends on our stock or repurchasing stock; making certain investments; engaging in specified sales of assets; entering into transactions with affiliates; and engaging in consolidation, mergers and acquisitions. Certain of these covenants will be suspended during such time, if any, that the First Lien Notes due October 2027 have investment grade ratings by at least two of Moody’s, S&P or Fitch. The 2027 First Lien Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the First Lien Notes due October 2027 to become or to be declared due and payable.

First Lien Notes due May 2028

On November 25, 2020, Frontier issued $1,550 million aggregate principal amount of the First Lien Notes due May 2028, which bear interest at a rate of 5.000% per annum. Interest is payable to holders of record semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2021.

The First Lien Notes due May 2028 were issued pursuant to an indenture, dated as of November 25, 2020 (the 2028 First Lien Indenture), by and among Frontier, the guarantors party thereto, the grantor party thereto, JPMorgan Chase Bank N.A., as collateral agent and Wilmington Trust, National Association, as trustee, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.

Prior to the conversion date, the First Lien Notes due May 2028 are secured on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility and the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility. From the conversion date, the First Lien Notes due May 2028 are secured on a first-priority basis and pari passu with its senior secured credit facilities, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities on a first-priority basis and pari passu with its senior secured credit facilities.

Frontier may redeem the First Lien Notes due May 2028 at any time, in whole or in part, prior to their maturity. If redeemed before May 1, 2024 the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date, plus a make-whole premium. If the notes are redeemed on or after May 1, 2024, the redemption price will be equal to the amounts set forth in the 2028 First Lien Indenture, together with any accrued and unpaid interest to the redemption date. In addition, at any time before May 1, 2024, Frontier may redeem up to 40% of the First Lien Notes due May 2028 using the proceeds of certain equity offerings at a redemption price equal to 105.000% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.

In the event of a change of control triggering event, each holder of the First Lien Notes due May 2028 will have the right to require Frontier to purchase the notes at a purchase price equal to 101% of the principal amount of the First Lien Notes due May 2028, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

34


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

The 2028 First Lien Indenture contains customary negative covenants, subject to a number of important exceptions and qualifications, including, without limitation, covenants related to incurring additional debt and issuing preferred stock; incurring or creating liens; redeeming and/or prepaying certain debt; paying dividends on our stock or repurchasing stock; making certain investments; engaging in specified sales of assets; entering into transactions with affiliates; and engaging in consolidation, mergers and acquisitions. Certain of these covenants will be suspended during such time, if any, that the First Lien Notes due May 2028 have investment grade ratings by at least two of Moody’s, S&P or Fitch. The 2028 First Lien Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the First Lien Notes due May 2028 to become or to be declared due and payable.

New Second Lien Notes

On November 25, 2020, Frontier issued $1,000 million aggregate principal amount of the New Second Lien Notes, which mature on May 1, 2029 and bear interest at a rate of 6.750% per annum. Interest is payable to holders of record semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2021.

The New Second Lien Notes were issued pursuant to an indenture, dated as of November 25, 2020 (the New Second Lien Indenture, and together with the 2027 First Lien Indenture and the 2028 First Lien Indenture, the Secured Note Indentures), by and among Frontier, the guarantors party thereto, the grantor party thereto, Wilmington Trust, National Association, as trustee and collateral agent, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.

Prior to the conversion date, the New Second Lien Notes are superpriority obligations secured by a second-priority lien junior to the DIP Revolving Facility, the DIP Term Loan Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility, the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028. From the conversion date, the New Second Lien Notes are secured on a second-priority basis junior to the DIP Revolving Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities and existing first lien notes on a second-priority basis junior to its secured credit facilities and existing first lien notes.

Frontier may redeem the New Second Lien Notes at any time, in whole or in part, prior to their maturity. If redeemed before May 1, 2024, the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date, plus a make-whole premium. If redeemed on or after May 1, 2024, the redemption price will be equal to the amounts set forth in the New Second Lien Indenture, together with any accrued and unpaid interest to the redemption date. In addition, at any time before November 1, 2023, Frontier may redeem up to 40% of the New Second Lien Notes using the proceeds of certain equity offerings at a redemption price equal to 106.750% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.

In the event of a change of control triggering event, each holder of the New Second Lien Notes will have the right to require Frontier to purchase the notes at a purchase price equal to 101% of the principal amount of the New Second Lien Notes, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

35


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

The New Second Lien Indenture contains customary negative covenants, subject to a number of important exceptions and qualifications, including, without limitation, covenants related to incurring additional debt and issuing preferred stock; incurring or creating liens; redeeming and/or prepaying certain debt; paying dividends on our stock or repurchasing stock; making certain investments; engaging in specified sales of assets; entering into transactions with affiliates; and engaging in consolidation, mergers and acquisitions. Certain of these covenants will be suspended during such time, if any, that the New Second Lien Notes have investment grade ratings by at least two of Moody’s, S&P or Fitch. The New Second Lien Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the New Second Lien Notes to become or to be declared due and payable.

Existing Debt Issuances and Reductions

Repaid Original First Lien Notes

On March 15, 2019, Frontier completed a private offering of $1,650 million aggregate principal amount of the Original First Lien Notes, which had a maturity date of April 1, 2027, and accrued interest at a rate of 8.000% per annum. The Original First Lien Notes were repaid in full on October 8, 2020 with proceeds from the offering of the New First Lien Notes and the DIP Term Loan Facility and cash on hand.

Frontier used the proceeds from the offering of the Original First Lien Notes, together with cash on hand, to (i) repay in full the outstanding borrowings under the senior secured Term Loan A facility under the JPM Credit Agreement, which otherwise would have matured in March 2021, (ii) repay in full the outstanding borrowings under the 2016 CoBank Credit Agreement, which otherwise would have matured in October 2021, and (iii) pay related interest, fees and expenses.

Repaid Original Second Lien Notes

On March 19, 2018, Frontier completed a private offering of $1,600 million aggregate principal amount of the Original Second Lien Notes, which had a maturity date of April 1, 2026, and accrued interest at a rate of 8.500% per annum. As noted above, these notes were repaid in full using the proceeds from the November 25, 2020 debt refinancing.

Repaid JP Morgan Credit Facilities

Frontier had an amended and restated credit agreement with JPMorgan Chase Bank, N.A.,JPM, as administrative agent, and the lenders party thereto, pursuant to which Frontier combined its revolving credit agreement, dated as of June 2, 2014, and its term loan credit agreement, dated as of August 12, 2015. Under the JPM Credit Agreement, as further amended on June 15, 2017 by Increase Joinder No.1 (as so amended, the JPM Credit Agreement), Frontier hasprovided for a $1,625 million senior secured term loanTerm Loan A facility (the Term Loan A) maturing on March 31, 2021, an $850, a $1,740 million undrawn secured revolving credit facility maturing on February 27, 2022 (the Revolver), and $1,500 million senior secured term loan B facility (the Term Loan B) maturingB, and the Revolver. As noted above all outstanding amounts remaining drawn under the Revolver and Term Loan B were fully repaid using cash on June 15, 2024.  The maturities ofhand and the proceeds from the November 25, 2020 debt refinancing, and all outstanding amounts remaining drawn under Term Loan A were fully repaid using the Revolver, andproceeds from the Term Loan B, in each case if still outstanding, will be accelerated in the following circumstances: (i) if, 91 days before the maturity date of any series of Senior Notes maturing in 2020, 2023 and 2024, more than $500 million in principal amount remains outstanding on such series; or (ii) if, 91 days before the maturity dateoffering of the first series of Senior Notes maturing in 2021 or 2022, more than $500 million in principal amount remains outstanding, inOriginal First Lien Notes.

On July 3, 2018, the aggregate, on the two series of Senior Notes maturing in such year. The determination of interest rates for each of the facilities underCompany entered into Increase Joinder No. 2 to the JPM Credit Agreement, is based on margins overpursuant to which the Base Rate (as defined in the JPM Credit Agreement) or over LIBOR, at the election of Frontier. Interest rate margins onCompany borrowed an incremental $240 million under the Term Loan A and Revolver (ranging from 0.75%B. The Company used the incremental borrowings to 1.75% for Base Rate borrowings and 1.75% to 2.75% for LIBOR borrowings) are subject to adjustment based on Frontier’s Total Leverage Ratio (as definedrepay in full the JPM Credit Agreement). The interest rate on the Term Loan A as of September 30, 2017 was LIBOR plus 2.75%. Interest rate margins on the Term Loan B (2.75% for Base Rate borrowings and 3.75% for LIBOR borrowings) are not subject to adjustment. The security package under the JPM Credit Agreement includes pledges of the equity interests in certain Frontier subsidiaries and guaranties by certain Frontier subsidiaries. As of September 30, 2017, the revolving credit facility was fully available and no borrowings had been made thereunder. The revolving credit facility is available for general corporate purposes but may not be used to fund dividend payments.

Frontier has two senior secured credit agreements with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other lenders party thereto: the first, for a $350 million senior term loan facility drawn in 2014 (the 2014 CoBank Credit Agreement)Agreement (as defined below), matures on October 24, 2019,repay a portion of the 2016 CoBank Credit Agreement (as defined below) and the second, forpay certain fees and expenses related to this incremental borrowing.

Repaid CoBank Credit Facilities

Frontier had a $315 million senior term loan facility drawn in October 2016 (the 2016 CoBank Credit Agreement), matures with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other lenders which was repaid in full on October 12, 2021. We refer to theMarch 15, 2019. Frontier had a separate $350 million senior term loan facility drawn in 2014 (the 2014 CoBank Credit Agreement and the 2016Agreement) with CoBank Credit Agreement collectively as the CoBank Credit Agreements.which was repaid in full on July 3, 2018.

36

Repayment of the outstanding principal balance under each of the CoBank Credit Agreements is being made in quarterly installments ($9 million, with respect to the 2014 CoBank Credit Agreement, and $8 million, with respect to the 2016 CoBank Credit Agreement), in each case with the remaining outstanding principal balance to be repaid on the applicable maturity date. Borrowings under each of the CoBank Credit Agreements bear interest based on the margins over the Base Rate (as defined in the applicable CoBank Credit Agreement) or over LIBOR, at the election of Frontier.

On March 29, 2017, Frontier amended the 2014 and 2016 CoBank Credit Agreements. The amendments provide that interest rate margins under each of these facilities will range from 0.875% to 3.875% for Base Rate borrowings and 1.875% to 4.875% for LIBOR borrowings, subject to adjustment based on our Total Leverage Ratio, as defined in each credit agreement. The interest rate on each of the facilities as of September 30, 2017 was LIBOR plus 3.875%. In addition, the amendments provide for increases in the maximum Leverage Ratio and expansion of the security package identical to those contained in the JPM Credit Agreement.

19


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

As of September 30, 2017, we were in compliance with all of our indenture and credit facility covenants.

Our scheduled principal payments are as follows as of September 30, 2017:



 

 

 



 

 

 



 

Principal

($ in millions)

 

Payments

    

 

 

 

2017 (remaining three months)

 

$

42 

2018

 

$

743 

2019

 

$

828 

2020

 

$

1,132 

2021

 

$

2,558 

2022

 

$

2,703 

Thereafter

 

$

10,010 

(9) (11) Restructuring Costs and Other ChargesCharges:

As of September 30, 2017,March 31, 2021, restructuring related liabilities of $12$3 million pertaining to employee separation charges wereare included in “Other current liabilities” in our consolidated balance sheet.

Restructuring costs and other charges, primarilyDuring the three-month period ended March 31, 2021, we incurred $2 million in expenses consisting of severance and other employee-relatedemployee costs of $46resulting from workforce reductions.

During the three-month period ended March 31, 2020, we incurred $48 million in connectionexpenses consisting of $8 million directly associated with transformation initiatives, $2 million of severance and employee costs resulting from workforce reductions, and $38 million of consulting and advisory costs related to our balance sheet restructuring activities through the Petition Date.

Effective with the Petition date, these other charges consisting of consulting and advisory costs incurred are includedrecorded in “Restructuring costs and other charges”Reorganization items, net in ourthe consolidated statement of operations for the nine months ended September 30, 2017. During the second quarter of 2017, Frontier sold its Frontier Secure Strategic Partnerships business at a loss of $9 million, which is also included in restructuring costs and other charges for the nine months ended September 30, 2017.operations.

The following is a summary of the changes in the liabilities established for restructuring programs at September 30, 2017:

and other related programs:

($ in millions)

Balance at January 1, 20172021

$

47 

Severance costs

Severance expense

46 

Cash payments during the period

(81)

(1)

Balance, September 30, 2017

Balance at March 31, 2021

$

12 

$

(10)

(12) Investment and Other Income:

The following is a summary of the components of Investment and Other Income:

For the three months ended

March 31,

($ in millions)

2021

2020

Interest and dividend income

$

-

$

Pension and OPEB benefit

All other, net

Total investment and other income, net

$

$

20

Pension and OPEB credit (cost) consists of interest costs, expected return on plan assets, amortization of prior service costs (credit) and amortization of unrecognized (gain) loss.

37


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

(10)   (13) Income Taxes:

The following is a reconciliation of the provision for income taxes computed at the federal statutory rate to income taxes computed at the effective rate:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended

 

For the nine months ended



 

September 30,

 

September 30,



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Consolidated tax provision at federal statutory rate

 

35.0 

%

 

35.0 

%

 

35.0 

%

 

35.0 

%

State income tax provisions, net of federal income

 

 

 

 

 

 

 

 

 

 

 

 

tax benefit

 

2.8 

 

 

4.2 

 

 

1.7 

 

 

4.3 

 

Tax reserve adjustment

 

(1.0)

 

 

6.3 

 

 

(0.2)

 

 

0.7 

 

Domestic production activities deduction

 

 -

 

 

(9.5)

 

 

 -

 

 

(2.4)

 

Changes in certain deferred tax balances

 

7.1 

 

 

(0.8)

 

 

0.2 

 

 

3.1 

 

Goodwill impairment

 

 -

 

 

 -

 

 

(10.2)

 

 

 -

 

Shared-based payments

 

0.1 

 

 

 -

 

 

(0.2)

 

 

 -

 

Federal research and development tax credit

 

1.5 

 

 

1.5 

 

 

0.3 

 

 

1.2 

 

All other, net

 

0.1 

 

 

 -

 

 

(0.1)

 

 

0.1 

 

Effective tax rate

 

45.6 

%

 

36.7 

%

 

26.5 

%

 

42.0 

%

For the three months ended

March 31,

2021

2020

Consolidated tax provision at federal statutory rate

21.0 

%

21.0 

%

State income tax provisions, net of federal income

tax expense (benefit)

8.7 

(1.2)

Changes in certain deferred tax balances

60.9 

0.6 

Interest expense deduction

(36.7)

-

Restructuring cost

5.1 

(3.4)

Loss on disposal of Northwest Operations

-

(2.4)

Tax reserve adjustment

-

(2.5)

Shared-based payments

-

(0.7)

Federal research and development tax credit

-

0.6 

All other, net

0.2 

(0.9)

Effective tax rate

59.2 

%

11.1 

%

Income taxes for the nine months ended September 30, 2017 includes the federal tax impact of $107 million related to the goodwill impairment recorded during the second quarter of 2017.

Income taxes for the nine months ended September 30, 2017 includes the impact of $2 million ofUnder ASC 740 – 270, income tax expense resultingfor interim periods is based on an annual effective tax rate for the full year with the exclusion of the discrete items. However, in a period when the Company is expecting marginal ordinary income (or loss) and relatively significant permanent differences, the actual effective tax rate for the year-to-date period may be used as an exception. The actual year-to date effective tax rate method was used by the Company in the first quarter of 2021.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. As part of the CARES Act, employers were allowed to defer payment of the employer’s share of the Social Security tax that they otherwise were responsible for paying on wages. The deferral applied to affected taxes that were normally required to be paid from March 27, 2020, through December 31, 2020. These deferred taxes must be paid in equal amounts in 2021 and 2022. As of March 31, 2021, Frontier has deferred the adoptionpayments of ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.”approximately $60 million in such taxes.

AmountsAs of March 31, 2021, and December 31, 2020, amounts pertaining to expected income tax related accountsrefunds of $48 million and $55$13 million are included in “Income taxes and other current assets” in the consolidated balance sheets, as of September 30, 2017respectively.

Frontier considered positive and December 31, 2016, respectively.

Duringnegative evidence in regard to evaluating certain deferred tax assets during the first ninequarter of 2021, including the development of recent years of pre-tax book losses. On the basis of this evaluation, a valuation allowance of $138 million ($125 million net of federal benefit) has been recorded for the three months ended March 31, 2021, related to these deferred tax assets and reflected in “Changes in certain deferred tax balances.”

As described more fully in Note 1 and Note 3, the Company expects to emerge from bankruptcy on April 30, 2021, at which time it will consummate a taxable disposition of 2017, we received net state income tax refundssubstantially all of $4 million. In October 2017, we received federal tax refundsthe assets and/or subsidiary stock of $48 million.the Company and utilize substantially all of the Company’s NOLs.

2138


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

(11)  (14) Net LossEarnings (Loss) Per Share:

All share and per share amounts in the tables below have been retroactively adjusted for all periods presented to give effect to the reverse stock split. See Note 1 – Summary of Significant Accounting Policies for additional details. 

The reconciliation of the net lossearnings (loss) per share calculation is as follows:



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



For the three months ended

 

For the nine months ended



September 30,

 

September 30,



 

 

 

 

 

 

 

 

 

 

 

($ in millions and shares in thousands, except per share amounts)

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

Net loss used for basic and diluted loss

 

 

 

 

 

 

 

 

 

 

 

per share:

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Frontier common shareholders

$

(92)

 

$

(134)

 

$

(936)

 

$

(454)

Less:  Dividends paid on unvested restricted stock awards

 

 -

 

 

(1)

 

 

(2)

 

 

(3)

Total basic net loss

 

 

 

 

 

 

 

 

 

 

 

attributable to Frontier common shareholders

$

(92)

 

$

(135)

 

$

(938)

 

$

(457)

Effect of loss related to dilutive stock units

 

 -

 

 

 -

 

 

(2)

 

 

 -

Total diluted net loss

 

 

 

 

 

 

 

 

 

 

 

attributable to Frontier common shareholders

$

(92)

 

$

(135)

 

$

(940)

 

$

(457)



 

 

 

 

 

 

 

 

 

 

 

Basic loss per share:

 

 

 

 

 

 

 

 

 

 

 

Total weighted average shares and unvested restricted stock

 

 

 

 

 

 

 

 

 

 

 

awards outstanding - basic

 

78,488 

 

 

78,205 

 

 

78,399 

 

 

78,134 

Less:  Weighted average unvested restricted stock awards

 

(691)

 

 

(593)

 

 

(685)

 

 

(526)

Total weighted average shares outstanding - basic

 

77,797 

 

 

77,612 

 

 

77,714 

 

 

77,608 



 

 

 

 

 

 

 

 

 

 

 

Basic net loss per share

 

 

 

 

 

 

 

 

 

 

 

attributable to Frontier common shareholders

$

(1.19)

 

$

(1.73)

 

$

(12.06)

 

$

(5.87)

  

 

 

 

 

 

 

 

 

 

 

 

Diluted loss per share:

 

 

 

 

 

 

 

 

 

 

 

Total weighted average shares outstanding - basic

 

77,797 

 

 

77,612 

 

 

77,714 

 

 

77,608 

Effect of dilutive stock units

 

 -

 

 

 -

 

 

161 

 

 

 -

Total weighted average shares outstanding - diluted

 

77,797 

 

 

77,612 

 

 

77,875 

 

 

77,608 



 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per share

 

 

 

 

 

 

 

 

 

 

 

attributable to Frontier common shareholders

$

(1.19)

 

$

(1.73)

 

$

(12.07)

 

$

(5.87)

For the three months ended

March 31,

($ in millions and shares in thousands, except per share amounts)

2021

2020

Net income (loss) used for basic and diluted earnings (loss)

per share:

Total basic net income (loss)

attributable to Frontier common shareholders

$

60 

$

(186)

Effect of loss related to dilutive stock units

-

-

Total diluted net income (loss)

attributable to Frontier common shareholders

$

60 

$

(186)

Basic earnings (loss) per share:

Total weighted average shares and unvested restricted stock

awards outstanding - basic

104,786 

105,060 

Less: Weighted average unvested restricted stock awards

(230)

(697)

Total weighted average shares outstanding - basic

104,556 

104,363 

Basic net earnings (loss) per share

attributable to Frontier common shareholders

$

0.57 

$

(1.78)

Diluted earnings (loss) per share:

Total weighted average shares outstanding - basic

104,556 

104,363 

Effect of dilutive stock units

340 

-

Total weighted average shares outstanding - diluted

104,896 

104,363 

Diluted net earnings (loss) per share

attributable to Frontier common shareholders

$

0.57 

$

(1.78)

In calculating diluted net loss per common share for the three and nine months ended September 30, 2016,March 31, 2020, the effect of all common stock equivalents iswas excluded from the computation as the effect would behave been antidilutive.

Stock Options

For the three and nine months ended September 30, 2017 and 2016,March 31, 2021 there were 0 outstanding stock options. As of March 31, 2020, previously granted options to purchase 2,6641,344 shares issuable under employee compensation plans were excluded from the computation of diluted earnings (loss) per share (EPS) for those periods because the exercise prices were greater than the average market price of our common stock and, therefore, the effect would be antidilutive. These options expired on July 6, 2020.

22


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Stock Units

At September 30, 2017each of March 31, 2021 and 2016,March 31, 2020, we had 161,020 and 116,223339,544 stock units respectively, issued under the Non-Employee Directors’ Deferred Fee Equity Plan (Deferred Fee Plan), the Non-Employee Directors’ Equity Incentive Plan (Directors’ Equity Plan), the 2013 Equity Incentive Plan and the 2017 Equity Incentive Plan. These securities have not0t been included in the diluted EPS calculation for the three months ended September 30, 2017 and 2016 and the nine months ended September 30, 2016March 31, 2020 because their inclusion would have an antidilutive effect. Compensation costs associated with the issuance of stock units were ($4) million for the nine months ended September 30, 2017. There were no compensation costs associated with the issuance of stock units for the nine months ended September 30, 2016.

Mandatory Convertible Preferred Stock

The impact of the common share equivalents associated with approximately 19,250,000 shares of Series A Preferred stock were not included in the diluted EPS calculation as of September 30, 2017 and 2016, as their impact was antidilutive

39

(12) 


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(15) Stock Plans:

All share and per share amounts in the tables below

At March 31, 2021, we have been retroactively adjusted for all periods presented to give effect to the reverse stock split. See Note 1 – Summary of Significant Accounting Policies for additional details. 

At September 30, 2017, we had seven4 stock-based compensation plans under which grants were made and awards remained outstanding. No further awards may be granted under sixthree of the plans: the 1996 Equity Incentive Plan (the 1996 EIP), the Amended and Restated 2000 Equity Incentive Plan (the 2000 EIP), the 2009 Equity Incentive Plan (the 2009 EIP), the 2013 Equity Incentive Plan (the 2013 EIP), the Deferred Fee Plan and the Directors’ Equity Plan. At September 30, 2017,March 31, 2021, there were approximately 5,667,000 shares authorized for grant and approximately 4,381,0003,754,000 shares available for grant under the 2017 Equity Incentive Plan (the 2017 EIP, and together with the 19962013 EIP, the 2000 EIP,  the 2009 EIP and the 2013 EIPS, the EIPs). Our general policy is to issue treasury shares upon the grant of restricted shares and the exercise of options.

Performance Shares

On February 16, 2017, the Compensation Committee of our Boardof Directors granted approximately 157,400 performance shares under the Frontier Long Term Incentive Plan (the LTIP) and set the operating cash flow performance goal for 2017, which applies to the first year in the 2017-2019 measurement period, the second year of the 2016-2018 measurement period and the third year of the 2015-2017 measurement period.

The following summary presents information regarding LTIP target performance shares as of September 30, 2017 and changes during the nine months then ended with regard to LTIP shares awarded under the 2013 EIP and the 2017 EIP:

 Number of

Shares

(in thousands)

Balance at January 1, 2017

190 

LTIP target performance shares granted, net

211 

LTIP target performance shares earned

(41)

LTIP target performance shares forfeited

(51)

Balance at September 30, 2017

309 

For purposes of determining compensation expense, the fair value of each performance share is measured at the end of each reporting period and, therefore, will fluctuate based on the price of Frontier common stock as well as performance relative to the targets. For the nine months ended September 30, 2017 and 2016, we recognized net compensation expense, reflected in “Selling, general and administrative expenses,” of $0  and $4 million, respectively, for the LTIP.

23


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Restricted Stock

The following summary presents information regarding unvested restricted stock as of September 30, 2017 and changes during the nine months then ended with regard to restricted stock granted under the 2013 EIP and the 2017 EIP:

Weighted

Average

Number of

Grant Date

Aggregate

Shares

Fair Value

Fair Value

(in thousands)

(per share)

(in millions)

Balance at January 1, 2021

304

$

6.78

$

-

Restricted stock granted

-

$

-

$

-

Restricted stock vested

(41)

$

8.23

$

-

Restricted stock forfeited

(109)

$

8.23

Balance at March 31, 2021

154 

$

5.38

$

-



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

Weighted

 

 

 



 

 

 

Average

 

 



 

Number of 

 

Grant Date

 

Aggregate



 

Shares

 

Fair Value

 

Fair Value



 

(in thousands)

 

(per share)

 

(in millions)

Balance at January 1, 2017

 

549 

 

$

78.00

 

$

28 

Restricted stock granted

 

454 

 

$

47.77

 

$

Restricted stock vested

 

(220)

 

$

79.78

 

$

(3)

Restricted stock forfeited

 

(119)

 

$

61.21

 

 

 

Balance at September 30, 2017

 

664 

 

$

59.64

 

$

For purposes of determining compensation expense, the fair value of each restricted stock grant is estimated based on the average of the high and low market price of a share of our common stock on the date of grant, for shares granted prior to May 10, 2017. Beginning on May 10, 2017, the fair value of each restricted stock grant is estimated based on the closing price of a share of our common stock on the date of the grant. Total remaining unrecognizedcompensation cost associated with unvested restricted stock awards that is deferred at September 30, 2017March 31, 2021 was $26less than $1 million, and the weighted average vesting period over which this cost is expected to be recognized is approximately 1.5 years.less than 1 year.

40

Shares of restricted stock granted during the first nine months of 2016 totaled 375,133. The total fair value of shares of restricted stock granted and vested at September 30, 2016 was approximately $23  million and $15  million, respectively. The total fair value of unvested restricted stock at September 30, 2016 was $37  million. The weighted average grant date fair value of restricted shares granted during the nine months ended September 30, 2016 was $78.60 per share.

We have granted restricted stock awards to employees in the form of our common stock. None of the restricted stock awards may be sold, assigned, pledged or otherwise transferred, voluntarily or involuntarily, by the employees until the restrictions lapse, subject to limited exceptions. The restrictions are time-based. Compensation expense, recognized in “Selling, general and administrative expenses,” of $14 million for each of the nine month periods ended September 30, 2017 and 2016, has been recorded in connection with these grants.  

24


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

(13) (16) Comprehensive Income (Loss):

Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting shareholders’ investmentequity (deficit) and pension/postretirement benefit (OPEB) liabilities that, under GAAP, are excluded from net loss.

The components of accumulated other comprehensive loss,income (loss), net of tax, at September 30, 2017 and 2016, and changes for the nine months then ended, are as follows:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

Pension Costs

 

OPEB Costs

 

Deferred Taxes on Pension and OPEB Costs

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

 

$

(647)

 

$

29 

 

$

231 

 

$

(387)

Other comprehensive income (loss)
before reclassifications

 

 

(34)

 

 

 

 

12 

 

 

(21)

Amounts reclassified from accumulated other comprehensive loss to net loss

 

 

23 

 

 

(7)

 

 

(5)

 

 

11 

Recognition of net actuarial loss for pension settlement costs in net loss

 

 

77 

 

 

 -

 

 

(29)

 

 

48 

Net current-period other comprehensive income (loss)

 

 

66 

 

 

(6)

 

 

(22)

 

 

38 

Balance at September 30, 2017

 

$

(581)

 

$

23 

 

$

209 

 

$

(349)

Pension

OPEB

($ in millions)

Costs

Costs

Total

Balance at January 1, 2021 (1)

$

(699)

$

(56)

$

(755)

Other comprehensive income (loss)

before reclassifications

-

-

-

Amounts reclassified from accumulated other

comprehensive loss to net income

14 

(3)

11 

Net current-period other comprehensive

income (loss)

14 

(3)

11 

Balance at March 31, 2021 (1)

$

(685)

$

(59)

$

(744)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

Pension Costs

 

OPEB Costs

 

Deferred Taxes on Pension and OPEB Costs

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2016

 

$

(584)

 

$

20 

 

$

211 

 

$

(353)

Other comprehensive income (loss)
before reclassifications

 

 

(105)

 

 

 -

 

 

40 

 

 

(65)

Amounts reclassified from accumulated other comprehensive loss

 

 

30 

 

 

(6)

 

 

(9)

 

 

15 

Net current-period other comprehensive income (loss)

 

 

(75)

 

 

(6)

 

 

31 

 

 

(50)

Balance at September 30, 2016

 

$

(659)

 

$

14 

 

$

242 

 

$

(403)

Pension

OPEB

($ in millions)

Costs

Costs

Total

Balance at January 1, 2020 (1)

$

(684)

$

34 

$

(650)

Other comprehensive income (loss)

before reclassifications

-

Amounts reclassified from accumulated other

comprehensive loss to net loss

90 

(5)

85 

Net current-period other comprehensive

income (loss)

91 

(5)

86 

Balance at March 31, 2020 (1)

$

(593)

$

29 

$

(564)

As a result(1)Pension and OPEB amounts are net of the pension settlement accounting discussed in Note 14, the Frontier Communications Pension Plan (the Pension Plan) was remeasuredtax of $234 million and $204 million as of September 30, 2017. This remeasurement resulted in a decrease in the discount rate from 4.10% atJanuary 1, 2021 and 2020, respectively and $230 million and $176 million as of March 31, 2017 to 3.8% at June 30, 20172021 and September 30, 2017, in addition to census data changes resulting in the recording of a loss on remeasurement to Other comprehensive income (loss) during each of the quarters. For the nine months ended September 30, 2017, Frontier recorded a net loss on remeasurement of $32 million, to Other comprehensive income (loss).  Additionally, Frontier recorded pension settlement charges  totaling $77 million  ($48 million net of tax) to Other comprehensive income (loss). Refer to Note 14 for details about the settlement accounting.2020, respectively.

2541


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

The significant items reclassified from each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2017 and 2016 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount Reclassified from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

 

Amount Reclassified from

 

 

Comprehensive Loss (1)

($ in millions)

 

Accumulated Other Comprehensive Loss (a)

 

 

Affected Line Item in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

the Statement Where

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Details about Accumulated Other
Comprehensive Loss Components

 

For the three months ended September 30,

 

For the nine months ended September 30,

 

Affected Line Item in the Statement Where Net Income (Loss) is Presented

 

2017

 

2016

 

2017

 

2016

 

 

Details about Accumulated Other

March 31,

Net Income (Loss)

Comprehensive Loss Components

2021

2020

is Presented

Amortization of Pension Cost Items (b)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial gains (losses)

 

$

(6)

 

$

(9)

 

$

(23)

 

$

(30)

 

 

$

(18)

$

(17)

Pension settlement costs

 

 

(15)

 

 

 -

 

 

(77)

 

 

 -

 

 

-

(103)

 

 

(21)

 

 

(9)

 

 

(100)

 

 

(30)

 

Income (loss) before income taxes

(18)

(120)

Income (Loss) before income taxes

Tax impact

 

 

 

 

 

 

37 

 

 

11 

 

Income tax (expense) benefit

30 

Income tax benefit

 

$

(13)

 

$

(6)

 

$

(63)

 

$

(19)

 

Net income (loss)

$

(14)

$

(90)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of OPEB Cost Items (b)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior-service costs

 

$

 

$

 

$

 

$

 

 

$

$

Actuarial gains (losses)

 

 

 

 

 -

 

 

 -

 

 

(1)

 

 

(3)

(2)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

Income (Loss) before income taxes

Tax impact

 

 

(2)

 

 

 -

 

 

(3)

 

 

(2)

 

Income tax (expense) benefit

(1)

(1)

Income tax benefit

 

$

 

$

 

$

 

$

 

Net income (loss)

$

$

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)(1) Amounts in parentheses indicate losses.

(b)(2) These accumulated other comprehensive loss components are included in the computation of net periodic pension and OPEB costs (see Note 1417 - Retirement Plans for additional details).

2642


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

(14)   (17) Retirement Plans:

The following tables provide the components of total pension and postretirement benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Pension Benefits

Pension Benefits

 

For the three months ended

 

For the nine months ended

For the three months ended

 

September 30,

 

September 30,

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

2017

 

2016

 

2017

 

2016

2021

2020

 

 

 

 

 

 

 

 

 

 

 

 

Components of total pension benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

26 

 

$

16 

 

$

76 

 

$

63 

$

24 

$

25 

Interest cost on projected benefit obligation

 

 

27 

 

 

24 

 

 

94 

 

 

89 

23 

30 

Expected return on plan assets

 

 

(43)

 

 

(30)

 

 

(139)

 

 

(122)

(45)

(50)

Amortization of unrecognized loss

 

 

 

 

 

 

23 

 

 

30 

18 

17 

Net periodic pension benefit cost

 

$

16 

 

$

19 

 

$

54 

 

$

60 

20 

22 

Pension settlement costs

 

 

15 

 

 

 -

 

 

77 

 

 

 -

-

103 

Total pension benefit cost

 

$

31 

 

$

19 

 

$

131 

 

$

60 

$

20 

$

125 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement Benefits

For the three months ended

March 31,

($ in millions)

2021

2020

Components of net periodic postretirement benefit cost

Service cost

$

$

Interest cost on projected benefit obligation

Amortization of prior service cost (credit)

(7)

(8)

Amortization of unrecognized (gain) loss

Net periodic postretirement benefit cost

$

$



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Postretirement Benefits



 

For the three months ended

 

For the nine months ended



 

September 30,

 

September 30,



 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Components of net periodic postretirement benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

 

$

16 

 

$

14 

Interest cost on projected benefit obligation

 

 

11 

 

 

10 

 

 

30 

 

 

27 

Amortization of prior service cost/(credit)

 

 

(2)

 

 

(2)

 

 

(7)

 

 

(7)

Amortization of unrecognized (gain) loss

 

 

(1)

 

 

 -

 

 

 -

 

 

Net periodic postretirement benefit cost

 

$

13 

 

$

14 

 

$

39 

 

$

35 

DuringThe components of net periodic benefit cost other than the first nine monthsservice cost component are included in “Investment and other income” in the consolidated statement of 2017 and 2016, we capitalized $20operations.

The value of our pension plan assets decreased $23 million from $2,507 million at December 31, 2020 to $2,484 million at March 31, 2021. This decrease primarily resulted from benefit payments to participants of $19 million and $18plan expenses of $5 million, respectively,partially offset by investment returns of $1 million.

The pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities.

The Pension Planplan contains provisions that provide certain employees with the option of receiving a lump sum payment upon retirement. Frontier’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 Pension Plan’s net periodic pension benefit cost. During the three and nine months ended September 30, 2017,March 31, 2020, lump sum pension settlement payments to terminated or retired individuals amounted to $87 million and $449$310 million, which exceeded the settlement threshold of $224$211 million, and as a result, Frontier recognized non-cash settlement charges totaling $77$103 million during the first ninethree months of 2017.ended March 31, 2020. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial losses in the Pension Plan. These non-cash charges increased our recorded net loss and accumulated deficit, with ana corresponding offset to accumulated other comprehensive loss in shareholders’stockholders’ equity. An additional pension settlement charge will be required in the fourth quarter of 2017, the amount of which will be dependent on the lump sum benefit payments made during the fourth quarter. As a result of the recognition of the settlement charges in the first nine months of 2017, the net pension plan liability was remeasured as of September 30, 2017, June 30, 2017 and March 31, 2017 to be $717 million, $711 million and $665million, respectively, as compared to the $699 million measured and recorded at December 31, 2016. The remeasured funded status of the Pension Plan was approximately 80%, as of September 30, 2017, similar to December 31, 2016. Frontier did not record any adjustment to the pension plan liability, beyond the settlement charge, as a result of this remeasurement.

43

27


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

Our Pension Plan assets decreased from $2,766

During the first three months of 2021 and 2020, we capitalized $6 million atand $7 million, respectively, of pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities.

Prior to the CARES Act, required pension plan contributions for fiscal year 2020 were approximately $180 million. The CARES Act (passed in March 2020) allowed employers to postpone making pension contributions due in 2020 until January 4, 2021. As a result, Frontier decided to defer all of its remaining 2020 fiscal year required contributions (approximately $147 million including additional interest).

On December 31, 20162020, a $27 million contribution was made for the 2019 plan year. The remaining required 2020 plan year contributions were further delayed past the January 4, 2021 deadline (approximately $120 million including additional interest to $2,604  million at September 30, 2017,January 4, 2021). As Frontier has applied for a decreasewaiver of $162 million, or  6%.delayed contributions per minimum funding standard regulations under Section 412(c) of the Internal Revenue Code and Section 302(c) of the Employee Retirement Income Security Act of 1974. This decrease was a result of benefitwaiver would delay payments of $492 million, partially offsetthe 2020 plan year by positive investment returnsspreading the 2020 plan year contributions, determined as of $270 million, net of investment managementJanuary 1, 2020, over the five subsequent plan years.

In March 2021, Congress passed the American Rescue Plan Act, or ARPA, which includes pension funding relief for plan sponsors.  ARPA provides for 1) a shortfall amortization period change from 7 to 15 years with a fresh start for the existing shortfall, with an option to commence in this in the 2019 plan year and administrative fees,2) interest rate stabilization, with an option to commence in this in the 2020 plan year.

Assuming the pension waiver described above is finalized and incorporating the ARPA pension relief provisions, our pension plan contributions in excess of the Differential (as defined below) of $60  million,fiscal year 2021 are estimated to be $95 million. There were 0 contributions made during the first ninethree months of 2017.  2021.

As part of the CTF Acquisition, Verizon was required to make a cash payment to Frontier for the difference in assets initially transferred by Verizon into the Pension Plan and the related obligation (the Differential).  In the third quarter of 2017, we received the $131 million Differential payment from Verizon, and have remitted an equivalent amount to the  Pension Plan as of September 30, 2017. As the Differential was reflected as a receivable of the Pension Plan at December 31, 2016, the cash funding had no impact to plan assets.

(15) (18) Commitments and Contingencies:

Although from time to time we make short-term purchasing commitments to vendors with respect to capital expenditures, we generally do not enter into firm, written contracts for such activities.

In June 2015, Frontier accepted the Federal Communications Commission’s (FCC) offer of support to price cap carriers under the Connect America Fund (CAF)FCC’s CAF Phase II program,offer in 25 states, which is intended to provide long-term support for broadband in high cost unserved or underserved areas. This program provides $332$313 million in annual support including $49through 2020 (since extended to 2021) in return for the Company’s commitment to make broadband available to households within Frontier’s footprint. The CAF II program ends and the Company must complete the CAF II deployment by December 31, 2021.

On January 30, 2020, the FCC adopted an order establishing the Rural Digital Opportunity Fund (RDOF) program. The FCC held the RDOF Phase I auction from October 29, 2020 through November 25, 2020 and announced the results on December 7, 2020. Frontier was awarded approximately $371 million in annual support relatedover ten years to build gigabit capable broadband over a fiber-to-the-premises network to approximately 127,000 locations across 8 states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). Frontier submitted its Long Form application to the properties acquired inFCC on January 29, 2021 and, assuming the CTF Acquisition, through 2020 to make available 10 Mbps downstream/1 Mbps upstream broadband service to approximately 774,000 households across certain of the 29 states where we now operate. To the extent we do not enable the required number of households with 10 Mbps downstream/1 Mbps upstream broadband servicelong-form application is granted by the end of the CAF Phase II term, we wouldFCC, anticipates that it will begin receiving funding on January 1, 2022, in which case, Frontier will be required to returncomplete the buildout to these locations by December 31, 2027, with interim target milestones over this period. After the FCC updates its maps with more granular broadband availability information, the FCC plans to hold a portionsecond auction (RDOF Phase II) for any remaining locations with the remaining funding, up to approximately $11.2 billion. Beginning in 2022, Frontier will be required to issue letters of credit to the FCC as a condition for amounts awarded.

44


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

On April 30, 2018, an amended consolidated class action complaint was filed in the United States District Court for the District of Connecticut on behalf of certain purported stockholders against Frontier, certain of its current and former directors and officers and the underwriters of certain Frontier securities offerings. The complaint was brought on behalf of all persons who (1) acquired Frontier common stock between February 6, 2015 and February 28, 2018, inclusive, and/or (2) acquired Frontier common stock or Mandatory Convertible Preferred Stock either in or traceable to Frontier’s offerings of common and preferred stock conducted on or about June 2, 2015 and June 8, 2015. The complaint asserted, among other things, violations of Section 10(b) of the funds previously received.

Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10b-5 thereunder, Section 20(a) of the Exchange Act and Sections 11 and 12 of the Securities Act of 1933, as amended (the Securities Act), in connection with certain disclosures relating to the CTF Acquisition. The complaint sought, among other things, damages and equitable and injunctive relief. On April 20, 2017,March 8, 2019, the FCC issued an OrderDistrict Court granted in its entirety Frontier’s motion to dismiss the complaint. The District Court dismissed with prejudice a number of claims and with respect to certain other claims that will significantly alter how Commercial Data Services are regulated oncewere not dismissed with prejudice, Plaintiffs were permitted to seek the rules go into effect. Specifically,court’s permission to refile. On May 10, 2019, Plaintiffs filed a motion for leave to amend along with a proposed amended complaint that is narrower in scope than the Order adopteddismissed complaint. On March 24, 2020, the court denied plaintiffs’ motion for leave to amend, finding that they had not pled a test to determine, on a county-by-county basis, whether price cap ILECs’, like Frontier’s, DS1viable claim. Plaintiffs appealed and DS3 services willthe case was stayed by the Second Circuit Court of Appeals. We continue to be regulated.dispute the allegations and intend to vigorously defend against such claims. In addition, shareholders have filed derivative complaints on behalf of the Company in Connecticut, California, and Delaware courts. The test is likelyderivative complaints are based, generally, on the same facts asserted in the consolidated class action complaint and allege against current and former officers and directors of the Company (i) breach of fiduciary duty claims for disseminating false and misleading information to resultshareholders, failure to manage internal controls, and failure to oversee and manage the company; (ii) unjust enrichment and waste of corporate assets claims; and (iii) violations of Section 14(a) of the Exchange Act for the false and misleading statements. We also dispute the allegations in deregulationthe derivative complaints described above and intend to vigorously defend against such claims. Given that all of these matters are in the initial stages of litigation, we are unable to estimate a substantial numberreasonably possible range of our markets. Once implemented, the deregulation will allow Frontier to offer its DS1 and DS3 services in a mannerloss, if any, that better responds to the competitive marketplace and allows for commercial negotiation. The areas that remain regulated may be subject to price fluctuations depending upon the price cap formula that year. Multiple parties have appealed and requested a stay of this Order. Frontier cannot predict the extent to which these regulatory changes will result in changes to revenues at this time. result.

WeIn addition, we are party to various legal proceedings (including individual actions, class and putative class actions)actions, and governmental investigations) 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,contract disputes, billing disputes, rights of access, taxes and surcharges, consumer protection, advertising, sales and the provision of services, intellectual property, including, trademark, copyright, and patent infringement, employment, shareholder, regulatory, tort, claims of competitors and disputes with other carriers. Litigation is subject to uncertainty and the outcome of individual matters is not predictable. However, we believe that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

In October 2013, the California Attorney General’s Office notified certain Verizon companies, including one of the subsidiaries that we acquired in the CTF Acquisition, of potential violations of California state hazardous waste statutes primarily arising from the disposal of electronic components, batteries and aerosol cans at certain California facilities. We are cooperating with this investigation. We have accrued an amount for potential penalties that we deem to be probable and reasonably estimated, and we do not expect that any potential penalties, if ultimately incurred, will be material in comparison to the established accrual.

We accrue an expense for pending litigation when we determine that an unfavorable outcome is probable, and the amount of the loss can be reasonably estimated. Legal defense costs are expensed as incurred. None of our existing accruals for pending matters, after considering insurance coverage, is material. We monitor our pending litigation for the purpose of adjusting our accruals and revising our disclosures accordingly, when required. Litigation is, however, subject to uncertainty, and the outcome of any particular matter is not predictable. We will vigorously defend our interests in pending litigation, and as of this date, we believe that

45


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our consolidated financial position, results of operations, or our cash flows.flows.

In October 2013, the California Attorney General’s Office notified certain Verizon companies, including oneAs part of the subsidiaries that we acquiredsale of the Northwest Operations, Frontier indemnified the purchaser for customary post-closing matters, including, among other things, breaches of certain covenants, agreements and warranties included in the CTF Acquisition, of potential violations of California state hazardous waste statutes primarily arisingpurchase agreement. While Frontier intends to comply with its obligations under the purchase agreement, we could be obligated to make payments pursuant to these provisions in the future. The amounts in escrow will be reviewed and unclaimed amounts released after one year from the disposalcompletion of electronic components, batteriesthe sale. See Note 8 for additional details on the divestiture of our Northwest Operations.

We conduct certain of our operations in leased premises and aerosol cansalso lease certain equipment and other assets pursuant to operating leases. The lease arrangements have terms ranging from 1 to 99 years and several contain rent escalation clauses providing for increases in monthly rent at certain California facilities. specific intervals. When rent escalation clauses exist, we record annual rental expense based on the total expected rent payments on a straight-line basis over the lease term. Certain leases also have renewal options. Renewal options that are reasonably assured are included in determining the lease term.

We are cooperatingparty to contracts with this investigation. We have accruedseveral unrelated long-distance carriers. The contracts provide fees based on traffic they carry for us subject to minimum monthly fees.

Effect of Automatic Stay

Subject to certain exceptions under the Bankruptcy Code, the filing of the Company Parties’ Chapter 11 Cases automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the Company Parties or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Company Parties’ bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

(19) Subsequent Events:

Refinancing and Incremental Amendment

On April 14, 2021, the Company entered into a Refinancing and Incremental Facility Amendment No. 2 (the “Refinancing and Incremental Amendment”), providing for an amendment to the DIP to Exit Term Credit Agreement, pursuant to which the DIP Term Loan Facility (and the exit term loan facility into which it will convert upon the Company Parties’ emergence from the Chapter 11 Cases) was repriced, effective on April 14, 2021. The determination of interest rates is based on margins over the alternate base rate or over LIBOR, at the Company's election. Prior to the Refinancing and Incremental Amendment, the interest rate margin was 4.75% for LIBOR loans or 3.75% for alternate base rate loans, with a 1.00% LIBOR floor. Pursuant to the Refinancing and Incremental Amendment, the interest rate margin is 3.75% for LIBOR loans or 2.75% for alternate base rate loans, with a 0.75% LIBOR floor.

Pursuant to the Refinancing and Incremental Amendment, JPM also agreed to provide, subject to certain conditions, including emergence from the Chapter 11 Cases, an incremental exit term loan facility in an aggregate principal amount for potential penalties of $225 million (the New Incremental Commitment and the loans borrowed thereunder, the New Incremental Term Loans). As previously disclosed, the Company and certain of its subsidiaries had previously entered into a commitment letter with certain existing noteholders and/or their

46

28


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(DEBTOR-IN-POSSESSION)

(Unaudited)

that we deemaffiliates (the Original Commitment Parties) pursuant to which, and subject to the satisfaction of certain conditions, including the Company Parties’ emergence from the Chapter 11 Cases, the Original Commitment Parties agreed to provide the Company with an incremental term loan facility in an aggregate principal amount of $225 million (the Original Incremental Commitment). The New Incremental Commitment will be used in place of the Original Incremental Commitment, which was terminated on April 14, 2021. The New Incremental Term Loans are expected to be probablefungible with, and reasonably estimated,on the same terms as, the Company’s existing term loans under the DIP to Exit Credit Agreement and we do not expect that any potential penalties, if ultimately incurred, will be material in comparisonhave the same CUSIP numbers and other identifiers. Refer to Note 10, for details related to the established accrual. DIP Term Loan Facility. At emergence our Exit term loan facility will have an aggregate principal amount of $1,475 million consisting of our converted DIP Term Loan Facility and the New Incremental Term Loan.

47

29


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements,"forward-looking statements" related to future not past, events. Forward-looking statements address our expected future business and financial performance and financial condition, and contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would,"“expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “may,” “will,” “would,” or "target."“target.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertaintiesUncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:include, but are not limited to:

·

competition from cable, wireless and wireline carriers, satellite, and OTT companies, and the risk that we will not respond on a timely or profitable basis;

·

our ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on our capital expenditures, products and service offerings;

·

risks related to the operation of properties acquired from Verizon, including our ability to retain or obtain customers in those markets, our ability to realize anticipated cost savings, and our ability to meet commitments made in connection with the acquisition;

·

reductions in revenue from our voice customers that we cannot offset with increases in revenue from broadband and video subscribers and sales of other products and services;

·

our ability to maintain relationships with customers, employees or suppliers;

·

our ability to attract/retain key talent;

·

the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks;

·

continued reductions in switched access revenues as a result of regulation, competition or technology substitutions;

·

the effects of changes in the availability of federal and state universal service funding or other subsidies to us and our competitors;

·

our ability to effectively manage service quality in our territories and meet mandated service quality metrics;

·

our ability to successfully introduce new product offerings;

·

the effects of changes in accounting policies or practices, including potential future impairment charges with respect to our intangible assets;

·

our ability to effectively manage our operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity, which may affect payment of dividends on our common and preferred shares;

·

the effects of changes in both general and local economic conditions on the markets that we serve;

·

the effects of increased medical expenses and pension and postemployment expenses;

·

the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments;

·

our ability to successfully renegotiate union contracts;

our ability to continue as a going concern;

our ability to successfully consummate a financial restructuring of our existing debt, existing equity interests, and certain other obligations (the Restructuring), and emerge from cases commenced under chapter 11 (the Chapter 11 Cases) of the United States Bankruptcy Code, including by satisfying the conditions in the Plan and the conditions and milestones in the restructuring support agreement;

our ability to improve our liquidity and long-term capital structure and to address our debt service obligations through the Restructuring and the potential adverse effects of the Chapter 11 Cases on our liquidity and results of operations;

our ability to maintain relationships with suppliers, customers, employees and other third parties as a result of the Restructuring and the Chapter 11 Cases;

the effects of the Restructuring and the Chapter 11 Cases on the Company and the interests of various constituents;

risks and uncertainties associated with the Restructuring, including our ability to satisfy the conditions precedent for effectiveness of and successfully consummate the Restructuring in accordance with the Plan under the Chapter 11 Cases;

our ability to comply with the restrictions imposed by covenants in our debtor-in-possession financing and expected to be imposed by our exit financing;

the length of time that we will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the Chapter 11 Cases;

risks associated with third party motions in the Chapter 11 Cases, which may interfere with the Company’s ability to consummate the Restructuring;

increased administrative and legal costs related to the Chapter 11 process;

declines in revenue from our voice services, switched and nonswitched access and video and data services that we cannot stabilize or offset with increases in revenue from other products and services;

our ability to successfully implement strategic initiatives, including opportunities to enhance revenue and realize productivity improvements;

our ability to effectively manage our operations, operating expenses, capital expenditures, debt service requirement and cash paid for income taxes and liquidity;

3048


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

competition from cable, wireless and wireline carriers, satellite, and over the top companies, and the risk that we will not respond on a timely or profitable basis;

our ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on our capital expenditures, products and service offerings;

risks related to disruption in our networks, infrastructure and information technology that result in customer loss and/or incurrence of additional expenses;

the impact of potential information technology or data security breaches or other cyber-attacks or other disruptions;

our ability to retain or attract new customers and to maintain relationships with customers, employees or suppliers;

our ability to secure, continue to use or renew intellectual property and other licenses used in our business;

changes to our board of directors and management team upon emergence from bankruptcy or in anticipation of emergence, and our ability to hire or retain key personnel;

our ability to dispose of certain assets or asset groups on terms that are attractive to us, or at all;

the effects of changes in the availability of federal and state universal service funding or other subsidies to us and our competitors and our ability to obtain future subsidies, including participation in the proposed RDOF program;

our ability to meet our CAF II obligations and the risk of penalties or obligations to return certain CAF II funds;

our RDOF application approval by the FCC and our ability to meet the applicable RDOF obligations and the risk of penalties or requirements to return certain RDOF funds;

our ability to comply with the obligations agreed to by the Company or imposed on the Company by regulatory authorities related to the approval to emerge from Chapter 11;

our ability to defend against litigation and potentially unfavorable results from current pending and future litigation;

our ability to comply with applicable federal and state consumer protection requirements;

the effects of state regulatory requirements that could limit our ability to transfer cash among our subsidiaries or dividend funds up to the parent company;

the effects of governmental legislation and regulation on our business, including costs, disruptions, possible limitations on operating flexibility and changes to the competitive landscape resulting from such legislation or regulation;

the impact of regulatory, investigative and legal proceedings and legal compliance risks;

government infrastructure projects (such as highway construction) that impact our capital expenditures;

·

changes in pension plan assumptions, interest rates, regulatory rules and/or the value of our pension plan assets, which could require us to make increased contributions to the pension plan in 2017 and beyond;

·

adverse changes in the credit markets;

·

adverse changes in the ratings given to our debt securities by nationally accredited ratings organizations;

·

the availability and cost of financing in the credit markets;

·

covenants in our indentures and credit agreements that may limit our operational and financial flexibility;

·

the effects of state regulatory cash management practices that could limit our ability to transfer cash among our subsidiaries or dividend funds up to the parent company;

·

the effects of severe weather events or other natural or man-made disasters, which may increase our operating expenses or adversely impact customer revenue;

·

the impact of potential information technology or data security breaches or other disruptions; and

·

the risks and other factors contained in our other filings with the U.S. Securities and Exchange Commission, including our reports on Form 10-K.

49


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

continued reductions in switched access revenues as a result of regulation, competition or technology substitutions;

our ability to effectively manage service quality in the states in which we operate and meet mandated service quality metrics;

the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments, including the risk that such changes may benefit our competitors more than us, as well as potential future decreases in the value of our deferred tax assets;

the effects of changes in accounting policies or practices, including potential future impairment charges with respect to our intangible assets;

the effects of increased medical expenses and pension and postemployment expenses;

our ability to successfully renegotiate union contracts;

changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of our pension plan assets, which could require us to make increased contributions to the pension plan in 2020 and beyond;

adverse changes in economic, political and market conditions in the areas that we serve, the U.S. and globally, including but not limited to, changes resulting from epidemics, pandemics and outbreaks of contagious diseases, including the COVID-19 pandemic, or other adverse public health developments;

potential adverse impacts of the COVID-19 pandemic on our business and operations, including potential disruptions to the work of our employees arising from health and safety measures such as social distancing and working remotely, our ability to effectively manage increased demand on our network, our ability to maintain relationships with our current or prospective customers and vendors as well as their abilities to perform under current or proposed arrangements with us, and stress on our supply chain; and

trading price and volatility of our common stock, risks related to the delisting of our common stock from the Nasdaq Global Select Market and the cancellation of the Company’s common stock as contemplated by the Plan.

Any of the foregoing events, or other events, could cause our results to vary from management’s forward-looking statements included in this report. You should consider these important factors, as well as the risks contained in our most recent Form 10-K and other filings with the SEC,in evaluating any statement in this report or otherwise made by us or on our behalf. The following information is unaudited and should be read in conjunction with the consolidated financial statements and related notes included in this report. We have no obligation to update or revise these forward-looking statements and do not undertake to do so.

Investors should also be aware that while we do, at various times, communicate with securities analysts, it is against our policy to disclose to them selectively any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by an analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.


50

31


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

On April 1, 2016, we completed our acquisitionOverview

Frontier Communications Corporation (Frontier or the Company, and as it may be reorganized pursuant to the Plan, Reorganized Frontier) is a provider of Verizon’s wireline properties in California, Texas, and Florida (the CTF Acquisition, of the CTF Operations).Frontier’s scope of operations and balance sheet changed materially as a result of the completion of the CTF Acquisition. Historical financial and operating data presented for Frontier includes the results of the CTF Operations that were acquiredcommunications services in the CTF Acquisition from the date of acquisition on April 1, 2016United States, with approximately 3.6 million customers, 3.1 million broadband subscribers and is not indicative of future16,200 employees, operating results. The financial discussion below includes a comparative analysis of our results of operations on a historical basisin 25 states as of March 31, 2021. We offer a broad portfolio of communications services for consumer and forcommercial customers. These services which include data and internet services, video services, voice services, access services, and advanced hardware and network solutions, are offered on either a standalone basis or in a bundled package, depending on each customer’s needs.

Q1 2021 Results

During the nine months ended September 30, 2017first quarter of 2021, Frontier reported operating income of $259 million and 2016.

On July 10, 2017, we effectednet income of $60 million. This compares to operating income of $272 million and a one for fifteen reverse stock splitnet loss of our common stock. The reverse stock split reduced the number of common shares issued (which includes outstanding shares and treasury shares) from approximately 1,193,000,000 shares to 80,000,000 shares, and reduced shares outstanding from 1,178,000,000 shares to 79,000,000 shares. In addition, and at the same time, the total number of shares of common stock that Frontier is authorized to issue changed from 1,750,000,000 shares to 175,000,000 shares. There was no change$186 million reported in the par valuefirst quarter of the common stock,2020. We have continued to experience net losses in customers, which have contributed to lower revenues and no fractional shares were issued. All share and per share amountslower profitability. Our results in the financial discussion below have been retroactively adjusted for all periods presentedfirst quarter of 2021 reflect $25 million of reorganization charges. Contractual interest attributable to give effectour unsecured noteholders of $252 million was not recorded, as we do not expect those amounts to the reverse stock split. As a result of our reverse stock split the conversion rates of our Series A Preferred Stock were proportionately adjusted.

be paid. Our financial results for the first nine months of 2017 include the CTF Operations for the first quarter of 2017.2020 included a pension settlement costs of $103 million, $48 million of restructuring costs, and loss on disposal of $24 million.

The company anticipates emerging from Chapter 11 on April 30, 2021 and eliminating approximately $11 billion in debt through the restructuring process. With an improved capital structure and stable liquidity position, the acquisition occurringCompany has been able to demonstrate that it will be able continue as a going concern upon emergence. See Note 3 for more information.

Recent Developments

Balance Sheet Restructuring

On April 1, 2016, there are no comparative results14, 2020, Frontier and its subsidiaries (collectively, the Company Parties or the Debtors and, as they may be reorganized pursuant to the Plan, the Reorganized Company Parties or the Reorganized Debtors) entered into a Restructuring Support Agreement (the Restructuring Support Agreement) with certain of its noteholders (the Consenting Noteholders) to facilitate the financial restructuring (the Restructuring) of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties. In connection therewith, on April 14, 2020 (the Petition Date), the Company Parties commenced cases under chapter 11 (the Chapter 11 Cases) of title 11 of the United States Code (the Bankruptcy Code) in the U.S. Bankruptcy Court for the corresponding periodSouthern District of New York (the Bankruptcy Court).

On May 15, 2020, the Company Parties filed a proposed Joint Plan of Reorganization and related Disclosure Statement, each of which were amended on June 26, 2020, June 29, 2020 and June 30, 2020. On May 15, 2020, the Debtors also filed a proposed order approving the Disclosure Statement and various plan solicitation materials, including the solicitation and voting procedures, which was revised on June 29, 2020 (including modifications to some of the exhibits). On June 30, 2020, the Bankruptcy Court entered the modified order approving the adequacy of the Disclosure Statement and the solicitation and notice procedures and the forms of voting ballots and notices in 2016.connection therewith. The table below reflectsorder established June 29, 2020 as the resultsvoting record date, July 2, 2020 as the solicitation launch date and July 31, 2020 as the voting deadline. On August 21, 2020, the Company Parties filed the Fifth Amended Joint Plan of operations forReorganization of Frontier Communications Corporation and Its Debtor Affiliates Pursuant to Chapter 11 of the CTF Operations for Bankruptcy Code (the first quarter of 2017. InPlan) with the narrative that follows for the nine month period, unless otherwise noted we will only discuss the remaining variance. Bankruptcy Court.

51

For the three months ended

($ in millions)

March 31, 2017

Data and Internet services

$

422 

Voice services

327 

Video services

281 

Other

Customer revenue

1,035 

Switched access and subsidy

52 

Total revenue

$

1,087 

Network access expenses

$

261 

Network related expenses

197 

Selling, general and administrative expenses

226 

Depreciation and amortization

280 

Acquisition and integration costs

 -

Pension settlement costs

22 

Restructuring costs and other charges

Total operating expenses

$

987 

32


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

On August 27, 2020, the Bankruptcy Court entered the Order Confirming the Fifth Amended Joint Plan of Reorganization ofFrontier Communications Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the Confirmation Order), which approved and confirmed the Plan. The effective date of the Plan will occur once all conditions precedent to the Plan have been satisfied (the Effective Date).

Upon emergence from the Chapter 11 Cases, execution of the Plan will accomplish three strategic goals:

Enable Frontier to become a stronger partner for customers to keep them connected to what matters most.

Provide significant financial flexibility to accelerate transformation, invest in infrastructure, and drive operational efficiencies.

Significantly improve Frontier’s capital structure and reduce outstanding debt by approximately $11 billion through the restructuring process.

During the Chapter 11 Cases, Frontier is allowed to reorganize its finances while the business operations continue. The Company Parties continue to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. For further developments on this topic, see “(b) Liquidity and Capital Resources—Chapter 11 Cases and Other Related Matters.”

Upon emergence from bankruptcy, we expect to adopt fresh start accounting in accordance with ASC 852, Reorganizations. Under fresh start accounting rules, upon the Effective Date of the Plan (each as defined herein), our assets and liabilities would be adjusted to fair value and our accumulated deficit would be restated to zero, which we expect will result in material adjustments to the recorded value of certain of our assets and liabilities. As a result, we may incur higher depreciation and amortization expense following the Effective Date. In addition, we may adopt accounting policy changes as part of fresh start accounting and such policies could result in material changes to our financial reporting and results. The actual impact of the application of fresh start accounting and any such accounting policy changes will be determined by management upon and following the Effective Date. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, we expect that our financial condition and results of operations following the emergence from Chapter 11 will not be comparable to the financial condition and results of operations reflected in our historical financial statements.

April 2021 Refinancing and Incremental Term Loan

On April 14, 2021, the Company entered into a Refinancing and Incremental Facility Amendment No. 2 (the Refinancing and Incremental Amendment), providing for an amendment to the DIP to Exit Term Credit Agreement, pursuant to which the DIP Term Loan Facility (and the exit term loan facility into which it will convert upon the Company Parties’ emergence from the Chapter 11 Cases) was repriced. Pursuant to the Refinancing and Incremental Amendment, JPM also agreed to provide, subject to certain conditions, including emergence from the Chapter 11 Cases, an incremental exit term loan facility in an aggregate principal amount of $225 million (the New Incremental Commitment and the loans borrowed thereunder, the New Incremental Term Loans). Refer to Note 19 for additional information related to the Refinancing and Incremental Facility Amendment.

Presentation of Results of Operations

The sections below include tables that present customer counts, average monthly consumer revenue per customer (ARPC) and consumer customer churn. We define churn which we define as the average of the number of consumer customer deactivations during the month divided by the number of consumer customers at the beginning of the month.month and utilize the average of each monthly churn in the period.

Management believes that consumer customer counts and average monthly revenue per customer are important factors in evaluating our consumer customer trends. Among the key services we provide to consumer customers are voice service, data service and video service. We continue to explore the potential to provide additional services to our customer base, with the objective of meeting all of our customers’ communications needs.

52


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

The following section should be read in conjunction with the unaudited interim consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.

The following charts present key customer metrics, disaggregation of revenue, and the results of operations of the consolidated company including the Northwest Operations (Northwest Ops) through the date of sale. The results of operations for the Northwest Operations are shown separate from the total for our operations located in the remaining 25 states (Remaining Properties).

3353


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(a)Results of Operations

Unless otherwise indicated, the discussion of the customer metrics and components of operating income for that follows relates only to the Remaining Properties for the three months ended March 31, 2021 and 2020.

Customer counts, ARPC, and Consumer Customer Churn

(a)

Results of Operations

As of or for the three months ended

March 31, 2021

March 31, 2020

%

Consolidated

Consolidated

Northwest

Remaining

Remaining

Frontier

Frontier

Ops

Properties

Properties

Customers (in thousands)

3,553 

4,063 

N/A

N/A

N/A

Consumer customer metrics

Customers (in thousands)

3,234 

3,703 

330

3,373 

-4%

Net customer additions (losses)

(30)

(44)

(5)

(39)

-23%

Average monthly consumer

   revenue per customer

$              86.60 

$          86.93 

$        77.22 

$        87.88 

-1%

Customer monthly churn

1.45%

1.81%

1.52%

1.84%

-21%

Commercial customer metrics

Customers (in thousands)

319 

360 

N/A

N/A

N/A

Broadband subscriber metrics

Broadband subscribers (in thousands)

3,052 

3,480 

297 

3,183 

-4%

Net subscriber additions (losses)

(17)

(33)

(5)

(28)

-39%

Video (excl. DISH) subscriber metrics

Video subscribers (in thousands)

453 

621 

27 

594 

-24%

Net subscriber additions (losses)

(32)

(39)

(2)

(37)

-14%

DISH subscriber metrics

DISH subscribers (in thousands)

129 

165 

16 

149 

-13%

Net subscriber additions (losses)

(5)

(8)

(1)

(7)

-29%

Employees

16,201 

17,437 

950

16,487 

-2%

CUSTOMER RELATED METRICS

Consumer Customers

For the three months ended March 31, 2021, Frontier lost 30,000, or 1%, of our consumer customers compared to 39,000, or 1% for the three months ended March 31, 2020. This includes net losses of our consumer broadband subscribers of approximately 11,000, or less than 1%. This loss was driven by a reduction in our copper broadband customers of 22,000, or a 2% decrease, offset by net additions of fiber broadband customers of 11,000, or a 1% increase. Additionally, we lost 7% and 3% of our consumer video and consumer voice customers, respectively, during the 3 months ended March 31, 2021. These trends are indicative of the shift in the Company’s strategy to focus primarily on increasing our fiber footprint and away from the acquisition of high cost video customers and packaging voice and video services with our broadband offerings. As of March 31, 2021, the continued trend of decreased bundling of our services resulted in 48% of our consumer broadband customers also subscribed to at least one other service offering, a decrease from both 54% as of March 31, 2020 and 50% as of December 31, 2020.

Our average monthly consumer customer churn was 1.45% for the three months ended March 31, 2021 compared to 1.84% for three months ended March 31, 2020. The reduction in customer churn was primarily driven by internal initiatives to increase customer retention, and the impact of COVID-19. The average monthly consumer revenue per customer (consumer ARPC) decreased by $1.28 or 1% to $86.60 during the three months ended March 31, 2021 compared to the prior year period. The overall decrease in consumer ARPC is primarily a result of decreased linear

54


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

video services along with decreased consumer voice services, slightly offset by increased fiber data and data equipment revenues.

Financial Results



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of or for the three months ended



 

September 30, 2017

 

December 31, 2016

 

% Increase (Decrease)

 

September 30, 2016

 

% Increase (Decrease)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customers (in thousands)

 

 

4,949 

 

 

5,393 

 

(8)

%

 

 

 

5,551 

(1)

(11)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer customer metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customers (in thousands)

 

 

4,486 

 

 

4,891 

 

(8)

%

 

 

 

5,035 

(1)

(11)

%

 

Net customer additions/(losses)

 

 

(99)

 

 

(144)

 

(31)

%

 

 

 

(155)

 

(36)

%

 

Average monthly consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   revenue per customer

 

$

80.91 

 

$

80.33 

 

%

 

 

$

82.34 

 

(2)

%

 

Customer monthly churn

 

 

2.08% 

 

 

2.08% 

 

 -

%

 

 

 

2.08% 

 

 -

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial customer metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customers (in thousands)

 

 

463 

 

 

502 

 

(8)

%

 

 

 

516 

(1)

(10)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Broadband subscriber metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Broadband subscribers

 

 

4,000 

 

 

4,271 

 

(6)

%

 

 

 

4,362 

(2)

(8)

%

 

Net subscriber additions/(losses)

 

 

(63)

 

 

(91)

 

(31)

%

 

 

 

(99)

 

(36)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Video (excl. DISH) subscriber metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Video subscribers (in thousands)

 

 

981 

 

 

1,145 

 

(14)

%

 

 

 

1,222 

(2)

(20)

%

 

Net subscriber additions/(losses)

 

 

(26)

 

 

(77)

 

(66)

%

 

 

 

(82)

 

(68)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISH subscriber metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISH subscribers (in thousands)

 

 

244 

 

 

274 

 

(11)

%

 

 

 

281 

(2)

(13)

%

 

Net subscriber additions/(losses)

 

 

(10)

 

 

(7)

 

43 

%

 

 

 

(11)

 

(9)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees

 

 

23,181 

(3)

 

28,332 

 

(18)

%

 

 

 

30,358 

 

(24)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of or for the nine months ended

 

 

 

 

 

 

 



 

September 30, 2017

 

September 30, 2016

 

% Increase

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer customer metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average monthly consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   revenue per customer

 

$

80.73 

 

$

76.11 

 

%

 

 

 

 

 

 

 

 

Customer monthly churn

 

 

2.23% 

 

 

1.94% 

 

15 

%

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31,

2021

2020

% Change

Consolidated

Consolidated

Northwest

Remaining

Consolidated

Remaining

Frontier

Frontier

Ops (1)

Properties

Frontier

Properties

Data and Internet services

$

842 

$

932 

$

77 

$

855 

-10%

-2%

Voice services

487 

572 

43 

529 

-15%

-8%

Video services

169 

222 

10 

212 

-24%

-20%

Other

95 

117 

108 

-19%

-12%

Revenue from contracts

with customers

1,593 

1,843 

139 

1,704 

-14%

-7%

Subsidy and other revenue

83 

90 

84 

-8%

-1%

Revenue

1,676 

1,933 

145 

1,788 

-13%

-6%

Operating expenses (2):

Network access

expenses

198 

286 

10 

276 

-31%

-28%

Network related

expenses

422 

444 

19 

425 

-5%

-1%

Selling, general and

administrative

expenses

408 

444 

19 

425 

-8%

-4%

Depreciation and

amortization

387 

415 

-

415 

-7%

-7%

Loss on disposal of

Northwest Operations

-

24 

-

24 

-100%

-100%

Restructuring costs and

other charges

48 

-

48 

-96%

-96%

Total operating expenses

$

1,417 

$

1,661 

$

48 

$

1,613 

-15%

-12%

Operating income (loss)

259 

272 

97 

175 

-5%

48%

Consumer

844 

971 

77 

894 

-13%

-6%

Commercial

749 

872 

62 

810 

-14%

-8%

Revenue from contracts

with customers

1,593 

1,843 

139 

1,704 

-14%

-7%

Subsidy and other revenue

83 

90 

84 

-8%

-1%

Total revenue

$

1,676 

$

1,933 

$

145 

$

1,788 

-13%

-6%

(1)Amounts represent the financial results of the Northwest Operations for the three months ended March 31, 2020.

(2)Operating expenses for the Northwest Operations do not include allocated expenses which are included in operating expenses for our Remaining Properties.

55


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

REVENUE

Revenue for our consumer and commercial customers was as follows:

(1)

2,283,000 consumer customers, 250,000 commercial customers and 2,533,000 total customers were acquired at the time of the April 2016 CTF Acquisition.

(2)

2,052,000 broadband subscribers and 1,165,000 video subscribers were acquired at the time of the April 2016 CTF Acquisition.

(3)

At December 31, 2016, we had approximately 1,900 employees in our Frontier Secure Strategic Partnerships business, which was sold in May 2017.

For the three months ended March 31,

$ Increase

% Increase

($ in millions)

2021

2020

(Decrease)

(Decrease)

Consumer

$

844 

$

894 

$

(50)

(6)

%

Commercial

749 

810 

(61)

(8)

%

Revenue from contracts with customers (1)

1,593 

1,704 

(111)

(7)

%

Subsidy and other revenue

83 

84 

(1)

(1)

%

Total revenue

$

1,676 

$

1,788 

$

(112)

(6)

%

Customer Trends(1)Amounts include approximately $16 million and Revenue Performance$17 million of lease revenue for each of the three months ended March 31, 2021 and 2020, respectively.

We provide service and product options in our consumer and commercial offerings in each of our markets. As of September 30, 2017, 68% of our consumer broadband customers were subscribed to at least one other service offering. 

We had approximately 4,486,000 and 5,035,000 total consumer customers as of September 30, 2017 and 2016, respectively. Our consumer customer churn was 2.08% for the three months ended September 30, 2017 (1.92% for Frontier legacy and 2.33% for CTF Operations) compared to 2.08%  (1.89% for Frontier legacy and 2.34% for CTF Operations) for the third quarter of 2016 and 2.24% (1.95% for Frontier legacy and 2.69% for CTF Operations) for the second quarter of 2017, respectively. The consolidated average monthly consumer revenue per customer

34


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(consumer ARPC) decreased by $1.43 or 2% to $80.91 during the third quarter of 2017 compared to the prior year period. The overall decrease in consumer ARPC is a result of lower voice services revenue and lower video revenue from our CTF Operations, partially offset by higher Frontier Secure revenue.

Our consumer customer churn was 2.23% for the nine months ended September 30, 2017 (1.94% for Frontier legacy and 2.68% for CTF Operations) compared to 1.94% (1.81% for Frontier legacy and 2.27% for CTF Operations) for the nine months ended September 30, 2016. The consolidated average monthly consumer revenue per customer (consumer ARPC) increased by $4.62 or 6% to $80.73 during the first nine months of 2017 compared to the prior year period. The overall increase in consumer ARPC is a result of higher revenue due to having nine months of CTF Operations in 2017 and only six months in 2016, partially offset by lower voice services revenue.

We had approximately 463,000 and 516,000 total commercial customers as of September 30, 2017 and 2016, respectively. We lost approximately 10,000 commercial customers during the three months ended September 30, 2017 compared to a loss of 12,000 customers for the three months ended September 30, 2016 and a loss of 11,000 for the three months ended June 30, 2017. Frontier expects the declines in voice services revenue and wireless backhaul revenues from commercial customers to continue for the remainder of 2017. Our Ethernet product revenues from our SME (small business, medium business and larger enterprise customers) and carrier customers have grown by 9% for the Frontier legacy operations during the third quarter of 2017, compared to the prior year period, and declined by 3% (including CTF Operations) compared to the second quarter of 2017.

We had approximately 4,000,000 and 4,362,000 broadband subscribers as of September 30, 2017 and 2016, respectively. During the three months ended September 30, 2017, we lost approximately 63,000 net broadband subscribers compared to a loss of 99,000 and a loss of 99,000 for the three months ended September 30, 2016 and June 30, 2017, respectively. 

We offer video services under the Vantage brand to certain of our customers in portions of Connecticut, North Carolina, South Carolina and Minnesota, and under the FiOS® brand in portions of California, Texas, and Florida (and on a limited basis in Indiana, Oregon and Washington). We also offer satellite TV video service to our customers under an agency relationship with DISH® in all of our markets.  For the three months ended September 30, 2017, we lost approximately 36,000 net video subscribers across all markets. At September 30, 2017, we had 981,000 linear video subscribers that are served with FiOS or Vantage video service. In addition to our linear video subscribers, we have approximately 244,000 DISH satellite video customers.

35


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

REVENUE



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

 

% Increase

($ in millions)

 

2017

 

2016

 

(Decrease)

 

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

 

 

Data and Internet services (1)

 

$

956 

 

$

1,045 

 

$

(89)

 

 

(9)

%

Voice services

 

 

702 

 

 

809 

 

 

(107)

 

 

(13)

%

Video services

 

 

318 

 

 

392 

 

 

(74)

 

 

(19)

%

Other

 

 

84 

 

 

73 

 

 

11 

 

 

15 

%

Customer revenue (1)

 

 

2,060 

 

 

2,319 

 

 

(259)

 

 

(11)

%

Switched access and

 

 

 

 

 

 

 

 

 

 

 

 

 

subsidy

 

 

191 

 

 

205 

 

 

(14)

 

 

(7)

%

Total revenue (1)

 

$

2,251 

 

$

2,524 

 

$

(273)

 

 

(11)

%



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

 

% Increase



 

2017

 

2016

 

(Decrease)

 

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

1,102 

 

$

1,272 

 

$

(170)

 

 

(13)

%

Commercial

 

 

958 

 

 

1,047 

 

 

(89)

��

 

(9)

%

Customer revenue (1)

 

 

2,060 

 

 

2,319 

 

 

(259)

 

 

(11)

%

Switched access and

 

 

 

 

 

 

 

 

 

 

 

 

 

subsidy

 

 

191 

 

 

205 

 

 

(14)

 

 

(7)

%

Total revenue (1)

 

$

2,251 

 

$

2,524 

 

$

(273)

 

 

(11)

%



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

 

% Increase

($ in millions)

 

2017

 

2016

 

(Decrease)

 

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

 

 

Data and Internet services (1)

 

$

2,923 

 

$

2,680 

 

$

243 

 

 

%

Voice services

 

 

2,177 

 

 

2,112 

 

 

65 

 

 

%

Video services

 

 

994 

 

 

879 

 

 

115 

 

 

13 

%

Other

 

 

231 

 

 

218 

 

 

13 

 

 

%

Customer revenue (1)

 

 

6,325 

 

 

5,889 

 

 

436 

 

 

%

Switched access and

 

 

 

 

 

 

 

 

 

 

 

 

 

subsidy

 

 

586 

 

 

598 

 

 

(12)

 

 

(2)

%

Total revenue (1)

 

$

6,911 

 

$

6,487 

 

$

424 

 

 

%



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

 

% Increase



 

2017

 

2016

 

(Decrease)

 

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

3,390 

 

$

3,187 

 

$

203 

 

 

%

Commercial

 

 

2,935 

 

 

2,702 

 

 

233 

 

 

%

Customer revenue (1)

 

 

6,325 

 

 

5,889 

 

 

436 

 

 

%

Switched access and

 

 

 

 

 

 

 

 

 

 

 

 

 

subsidy

 

 

586 

 

 

598 

 

 

(12)

 

 

(2)

%

Total revenue (1)

 

$

6,911 

 

$

6,487 

 

$

424 

 

 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

(1)    Includes revenue from Frontier Secure Strategic Partnerships business, which was sold in May of 2017, of $22 million for the three months ended September 30, 2016 and $40 million and $62 million for the nine months ended September 30, 2017 and 2016, respectively. 

36


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Revenue

We generate revenues primarily through either a monthly recurring fee or a fee based on usage, and revenue recognition is not dependent upon significant judgments by management, with the exception of a determination of the provision for uncollectible amounts.

Consolidated total revenue forFor the ninethree months ended September 30, 2017 increased $424 million to $6,911 million asMarch 31, 2021, decreased consumer revenues were primarily driven by the 4% decline in consumer customers when compared to the prior year period. Excluding additional revenue from the CTF OperationsMarch 31, 2020, combined with decreased ARPC (as described above) resulting in reduced revenues for the first quarter of 2017, our revenue for the first nine months of 2017 decreased $663 million, or 10%, as compared to the prior year period. This decline in 2017 is primarily the result of decreases inconsumer voice services, revenues, lower switchedvideo services, and nonswitched access revenue, video,to a lesser extent, data and data services revenue, each as describedinternet services.

Decreases in more detail below.

Customer revenue for the nine months ended September 30, 2017 increased $436 million to $6,325 million as compared to the prior year period. Excluding additional revenue from the CTF Operations for the first quarter of 2017, our customer revenue for the first nine months of 2017 decreased $599 million, or 10%, as compared to the prior year period.

Consolidated consumer customer revenue for the nine months ended September 30, 2017 increased $203 million, or 6%, as compared to the prior year period.  Excluding additional consumer customer revenue from the CTF Operations for the first quarter of 2017,commercial revenues for the first ninethree months ended March 31, 2021 were primarily driven by reductions in wholesale revenues of 20176%, which comprised approximately 53% of our commercial revenues. The decline in wholesale revenues were primarily a result of rate declines for our network access services as a result of more collaborative approach we are undertaking with our carrier clients, which we expect will lead to more sustainable service revenues. Our small and medium business and larger enterprise (SME) revenues, decreased $411 million, or 13%9%, compared tofor the prior year period,three months ended March 31, 2021, primarily as a result of decreasesa decline in voice, videosmall business customers as compared to March 31, 2020.

56


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Revenue by product and data services revenue. Similar to other wireline providers, we have experienced declines in the numberservice type was as follows:

For the three months ended March 31,

$ Increase

% Increase

($ in millions)

2021

2020

(Decrease)

(Decrease)

Data and Internet services

$

842 

$

855 

$

(13)

(2)

%

Voice services

487 

529 

(42)

(8)

%

Video services

169 

212 

(43)

(20)

%

Other

95 

108 

(13)

(12)

%

Revenue from contracts with customers (1)

1,593 

1,704 

(111)

(7)

%

Subsidy and other revenue

83 

84 

(1)

(1)

%

Total revenue

$

1,676 

$

1,788 

$

(112)

(6)

%

(1)Amounts include approximately $16 million and $17 million of traditional voice customers and switched access minutes of use as a result of competition and the availability of substitutes, a trend we expect to continue.

Consolidated commercial customerlease revenue for the ninethree months ended September 30, 2017 increased $233 million, or 9%, as compared to the prior year period. Excluding additional commercial customer revenue from the CTF Operations for the first quarter of 2017,  revenues for 2017 declined $188 million, or 7%, as compared to the prior year period, principally as a result of decreases in our voice services revenueMarch 31, 2021 and nonswitched revenue including wireless backhaul revenue.2020, respectively.

Consolidated switched access and subsidy revenue of $586 million represented 8% of our revenues for the nine months ended September 30, 2017. Switched access revenue was $129 million for both the first nine months of 2017 and 2016, or 2% of our revenues for each period. The Report and Order released by the FCC on November 18, 2011 (the 2011 Order) provided for the gradual elimination of terminating traffic charges by 2017 with a related decline in operating expenses. Switched access revenue declined sequentially in the third quarter of 2017, reflecting the rate reductions mandated by the 2011 Order, and we anticipate that we have experienced nearly all of the rate decline related to the 2011 Order. We have been able to recover a significant portion of these lost revenues through end user rates and other replacement support mechanisms, a trend we expect will continue throughout 2017. We expect declining revenue trends due to reduced volume in switched access revenue to continue in the fourth quarter of 2017 in our legacy operations. Subsidy revenue, including CAF Phase II subsidies, was $457 million for the nine months ended September 30, 2017, or 7% of our revenues, which decreased from $468 million, or 7% of our revenues, in the prior year period.  

We categorize our products, services, and other revenues into the following five categories:

Data and Internet Services

Broadband and data services revenues comprised 63% or $527 million of total Data and internet services revenue, while network access revenues comprised 37% or $315 million. Network access revenues include broadband services for consumer and commercial customers. We provideour data transmission services to high volume commercial customers and other carriers with dedicated high capacity circuits (“nonswitched access”) including services to wireless providers (“wireless backhaul”)(wireless backhaul).

For the three months ended March 31, 2021, Data and Internet services revenue for the three months ended September 30, 2017 decreased $89 million as compared with 2016. Data services revenue for the three months ended September 30, 2017 decreased $65 million, or 11%, to $548 million,by 2% primarily due to andecreased network access revenues, offset by increased broadband and data services revenue. Network access revenues declined 8%, compared to the same period in 2020. This decrease in the total number of broadband subscribers since September 30, 2016, and a decline in revenue of approximately $22 millionwas due to the salean ongoing migration of our Frontier Secure Strategic Partnerships business. Nonswitched access revenues for the three months ended September 30, 2017

37


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

decreased $25 million, or 6%, to $408 million, primarily duecarrier customers from legacy technology circuits to lower monthly recurring revenues for wireless backhaulpriced ethernet circuits. Broadband and other carrier services.

Consolidated data and Internet services revenue for the nine months ended September 30, 2017 increased $243 million as compared with 2016. Consolidated data services revenue for the nine months ended September 30, 2017 increased $128 million, or 8%, to $1,696 million as compared with 2016. Excluding additional(which represents all data and internet service revenue fromother than our Network access service revenue) increased by 2% compared to the CTF Operations for the first quarter of 2017, revenue for the first nine months decreased $111 million, or 7%,corresponding period in 2020. The increase was primarily driven by a reduction in revenue of $22 million as a result of the sale of the Frontier Secure Strategic Partnerships business in May of 2017 and a decrease in the total number of broadband subscribers. 

Consolidated nonswitched access revenues for the nine months ended September 30, 2017 increased $115 million or 10% to $1,277 million as compared with 2016. Excluding additional nonswitched access revenue from the CTF Operations for the first quarter of 2017, revenue decreased $67 million, or 6%, due to lower monthly recurring revenue for wireless backhaul and other carrier services. We expect wireless data usage to continuemanagement initiatives to increase which may drive the need for additional wireless backhaul capacity. Despite the need for additional capacity, in the near term, we anticipate that our overall wireless backhaul revenues (which comprise approximately 2.9% of consolidated total revenues) will continue to decline in 2017, as our carrier customers migrate to Ethernet solutions at lower price points or migrate to our competitors.broadband customer base.

Voice Services

Voice services include traditional local and long distancelong-distance wireline services, data-based Voice over Internet Protocol (VoIP) services, as well as voice messaging services offered to our consumer and commercial customers. Voice services also include the long distancelong-distance voice origination and termination services that we provide to our commercial customers and other carriers.

Voice services revenue forFor the three months ended September 30, 2017March 31, 2021 decreased $107 million, or 13%, to $702 million as compared with 2016,voice services revenue was primarily due to the continueda net loss of voicein consumer customers and decreasesa net loss in long distance revenue among thosecommercial customers that do not havecombined with a bundled long distance plan.  

Voice services revenue for the nine months ended September 30, 2017 increased $65 million, or 3%, to $2,177 million as compared with 2016. Excluding additionalreduction in voice services revenue from the CTF Operations for the first quarter of 2017, revenues decreased $262 million, or 12%, due to the continued loss of voice customers and decreases in long distance revenue.  being bundled with broadband services.

Video Services

Video servicesinclude revenues generated from services provided directly to consumer customers through the FiOS video and Vantage video brands,as linear terrestrial television services, and through DISHDish satellite TV services.

Video services revenue forFor the three months ended September 30, 2017March 31, 2021 decreased $74 million, or 19%, to $318 million as compared with 2016 due to a decrease in the total number of video subscribers.

Video services revenue for the nine months ended September 30, 2017 increased $115 million, or 13%, to $994 million compared with 2016. Excluding additional video services revenue fromwas primarily driven by a 24% net loss in linear video customers, when compared to the CTF Operations for the first quarter of 2017,  revenues decreased $166 million, or 19%, due to a decrease in the total number of video subscribers.

Other 

Other customer revenue includes sales of customer premise equipment to our commercial customers and directory services, less our provision for bad debts.

Other revenue for the three months ended September 30, 2017 increased $11 million, or 15%, as compared with 2016 primarily due to a decrease in uncollectibles,prior year period, partially offset by a decrease in customer premise equipment sales during the third quarter of 2017. Other revenue for the nine months ended September 30, 2017 increased $13 million, or 6%. Excluding additional other revenue from the CTF Operations for the first quarter of 2017, revenues increased $8 million due to a decrease in uncollectibles, partially offset by a decrease in maintenance contracts.price increases.

57

38


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Switched Access

Other

Other customer revenue includes switched access revenue and Subsidy

sales of Customer Premise Equipment (CPE) to our business customers and directory services. Switched access and subsidy revenues include revenuesrevenue includes revenue derived from allowing other carriers to use our network to originate and/or terminate their local and long distancelong-distance voice traffic (“switched access”)(switched access). These services are primarily billed on a minutes-of-use basis applying tariffed rates filed with the FCC or state agencies. We also receive cost subsidies from state and federal authorities, including the Connect America Fund.

Switched access and subsidyThe decrease in other revenue for the three months ended September 30, 2017 decreased $14 million, or 7%,March 31, 2021 was primarily driven by a reduction in late payment fees, early termination fees and reconnect fees in 2021 as compared with 2016. Switched access revenue decreased $4 million for the three months ended September 30, 2017, primarily due to the impact of the decline in minutes of use related to access line losses and the displacement of minutes of use by wirelessprior year period.

Subsidy and other communications services, combined with the lower rates required by the FCC’s 2011 Order on intercarrier compensation reform. revenue

Subsidy revenues decreased $10 million for the three months ended September 30, 2017, primarily due to one-time true-up payments and phasedown support recognized in the second quarter of 2016 in connection with the CAF Phase II program.

Switched access and subsidyother revenue, for the nine months ended September 30, 2017 decreased $12 million, or 2%,was relatively flat as compared with 2016.  Switched access revenue decreased $1 million for the nine months ended September 30, 2017, primarily due to the impact of the decline in minutes of use related to access line losses and the displacement of minutes of use by wireless and other communications service, combined with the lower rates required by the FCC’s 2011 Order on intercarrier compensation refund.  Excluding additional switched access revenue from the CTF Operations for the first quarter of 2017, revenue decreased $15 million, or 11%. Subsidy revenues for the nine months ended September 30, 2017 decreased $11 million.  Excluding additional subsidy revenue from the CTF Operations for the first quarter of 2017, revenue decreased $46 million, or 10%. We expect that switched access revenue will continue to decline in the fourth quarter of 2017.2021.

OPERATING EXPENSES

NETWORK ACCESS EXPENSES



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

% Increase

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 



 

 

 

 

 

 

 

 

 

 

 

 

Network access expenses

 

$

390 

 

$

440 

 

$

(50)

 

(11)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

% Increase

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 



 

 

 

 

 

 

 

 

 

 

 

 

Network access expenses

 

$

1,209 

 

$

1,053 

 

$

156 

 

15 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31,

$ Increase

% Increase

($ in millions)

2021

2020

(Decrease)

(Decrease)

Network access expenses

$

198 

$

276 

$

(78)

(28)

%

Network access expenses include access charges and other third-party costs directly attributable to connecting customer locations to our network, and video content costs and certain promotional costs. Such access charges and other third-party costs exclude network related expenses, depreciation and amortization, and employee related expenses.

Network access expenses for For the three months ended September 30, 2017 decreased $50 million, or 11%, primarily due toMarch 31, 2021, the decrease in network access expense was driven by lower video content costs as a result of a decline in video customers partially offset by higher promotionaland non-renewal of certain content agreements as well as decreased CPE costs.

Network access expenses for the nine months ended September 30, 2017 increased $156 million, or 15%. Excluding additional expenses from the CTF Operations for the first quarter of 2017,  network access expenses for the nine months ended September 30, 2017 decreased $105 million, or 10%, primarily due to lower video content and long distance costs as a result of a decline in customers.

39


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NETWORK RELATED EXPENSES



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

% Increase

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 



 

 

 

 

 

 

 

 

 

 

 

 

Network related expenses

 

$

497 

 

$

527 

 

$

(30)

 

(6)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

% Increase

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 



 

 

 

 

 

 

 

 

 

 

 

 

Network related expenses

 

$

1,468 

 

$

1,399 

 

$

69 

 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31,

$ Increase

% Increase

($ in millions)

2021

2020

(Decrease)

(Decrease)

Network related expenses

$

422 

$

425 

$

(3)

(1)

%

Network related expenses include expenses associated with the delivery of services to customers and the operation and maintenance of our network, such as facility rent, utilities, maintenance and other costs, as well as salaries, wages and related benefits associated with personnel who are responsible for the delivery of services, and the operation and maintenance of our network.

Network related expenses for For the three months ended September 30, 2017 decreased $30 million, or 6%, as compared with 2016, primarily due to a decrease in compensation costs related to lower employee headcount and certain benefits, including incentive compensation, pension and OPEB expense (as discussed below). There was also a reduction in rental costs for vehicles previously under operating leases that were modified during late 2016, resulting in the classification as capital leases, which were partially offset by an increase in outside services, primarily related to storm-related costs.

March 31, 2021, Network related expenses for the nine months ended September 30, 2017 increased $69 million, or 5%, as compared with 2016.  Excluding additional expenses from the CTF Operations for the first quarter of 2017, network related expenses for the nine months ended September 30, 2017 decreased $128 million, or 9%, primarily due to a decrease in compensation costs related to lower employee headcount and a reduction in rental costs for vehicles.were relatively flat.

58


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

For the three months ended March 31,

$ Increase

% Increase

($ in millions)

2021

2020

(Decrease)

(Decrease)

Selling, general and

administrative expenses

$

408 

$

425 

$

(17)

(4)

%



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

% Increase

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

Selling, general and

 

 

 

 

 

 

 

 

 

 

 

 

administrative expenses

 

$

486 

 

$

582 

 

$

(96)

 

(16)

%



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

% Increase

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

Selling, general and

 

 

 

 

 

 

 

 

 

 

 

 

administrative expenses

 

$

1,561 

 

$

1,535 

 

$

26 

 

%



 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses (SG&A expenses) include the salaries, wages and related benefits and the related costs of corporate and sales personnel, travel, insurance, non-network related rent, advertising, and other administrative expenses.

SG&A expenses for For the three months ended September 30, 2017 decreased $96 million, or 16%, due to lower costs for compensation, primarily related to decreased employee headcount, lower incentive compensation costs, certain benefits, including pension and OPEB expense (as discussed below), reduced marketing costs, and lower information technology and other outside services costs. There were approximately $23 million of additional SG&A

40


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

expense duringMarch 31, 2021, the third quarter of 2016 related to the Frontier Secure Strategic Partnerships business, which was solddecrease in May of 2017.  

SG&A expenses for the nine months ended September 30, 2017 increased  $26 million, or 2%, as compared with 2016. Excluding additional expenses from the CTF Operations for the first quarter of 2017, SG&A expenses for the nine months ended September 30, 2017 decreased $200 million, or 13%, primarily due to lower compensationwas driven by reduced property taxes and other employee related costs and reduced costs for outside services and marketing. There were approximately $28 million of additional SG&A expense during the nine months ended September 30, 2016 related to the Frontier Secure Strategic Partnerships business, which was solda decrease in May of 2017.  certain executive benefits.

Pension and OPEB costs

Frontier allocates certain pension/OPEB expense to network related expenses and SG&A expenses. Total consolidated pension and OPEB costs, excluding pension settlementservice costs for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 were as follows:

For the three months ended March 31,

($ in millions)

2021

2020

Total pension/OPEB

service costs

$

29 

$

30 

Less: costs capitalized into

capital expenditures

(6)

(7)

Net pension/OPEB costs

$

23 

$

23 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

For the nine months ended September 30,

($ in millions)

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Total pension/OPEB

 

 

 

 

 

 

 

 

 

 

 

 

expense

 

$

29 

 

$

33 

 

$

93 

 

$

95 

Less: costs capitalized into

 

 

 

 

 

 

 

 

 

 

 

 

capital expenditures

 

 

(6)

 

 

(5)

 

 

(20)

 

 

(18)

Net pension/OPEB costs

 

$

23 

 

$

28 

 

$

73 

 

$

77 



 

 

 

 

 

 

 

 

 

 

 

 

DEPRECIATION AND AMORTIZATION EXPENSE

For the three months ended March 31,

$ Increase

% Increase

($ in millions)

2021

2020

(Decrease)

(Decrease)

Depreciation expense

$

308 

$

316 

$

(8)

(3)

%

Amortization expense

79 

99 

(20)

(20)

%

Depreciation and

Amortization expense

$

387 

$

415 

$

(28)

(7)

%

The fair value estimates related to the allocation of the purchase price of the CTF Operations to Other intangibles were revised and finalized during the first quarter of 2017 from the previous estimates as of December 31, 2016. The allocation that was reported as of December 31, 2016 for Other intangibles increased $100 million, from $2,162 million to $2,262 million. These adjustments resulteddecrease in higher amortization expense during the nine months ended September 30, 2017 ($20 million of which is attributable to 2016).



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

% Increase

 

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

376 

 

$

323 

 

$

53 

 

 

16 

%

 

Amortization expense

 

 

163 

 

 

255 

 

 

(92)

 

 

(36)

%

 



 

$

539 

 

$

578 

 

$

(39)

 

 

(7)

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

% Increase

 

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

1,131 

 

$

1,009 

 

$

122 

 

 

12 

%

 

Amortization expense

 

 

539 

 

 

460 

 

 

79 

 

 

17 

%

 



 

$

1,670 

 

$

1,469 

 

$

201 

 

 

14 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization expense for the three and nine months ended September 30, 2017 decreased $39 million, or 7%, and increased $201 million, or 14%, respectively. Depreciationdepreciation expense for the three months ended September 30, 2017 increased $53 million, or 16%. The increaseMarch 31, 2021 was primarily driven by the changes in the remaining lives of certain plant assets. Excluding additional expense from the CTF Operations for the first quarter of 2017, depreciation expense decreased $17 million, or 2%, for the nine months ended September 30, 2017 as compared to the prior year period due to lower net asset bases, as comparedrefer to 2016.  Note 6.

41


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

AmortizationThe decrease in amortization expense for the three months ended September 30, 2017 decreased $92 million, or 36% as compared with 2016. The decreaseMarch 31, 2021 was primarily driven by the accelerated method of amortization related to customer bases acquired in 2010, 2014, and 2014, offset by an increase in2016.

LOSS ON DISPOSAL OF NORTHWEST OPERATIONS

During the valuethree months ended March 31, 2020, Frontier recorded a loss on disposal of $24 million associated with the sale of the acquired CTF customer base as a result of final purchase accounting adjustments in 2017. ExcludingNorthwest Operations. There was no additional expense from the CTF Operations forloss on disposal recorded during the first quarter of 2017, amortization expense decreased $62 million, or 13%, for the nine months ended September 30, 2017 as compared to the prior year period due to an increase in the value of the acquired CTF customer base subsequent to the second quarter of 2016, offset by the accelerated method of amortization related to customer bases acquired in 2010 and 2014.2021.

59

GOODWILL IMPAIRMENT

As a result of the continued decline in the share price of our common stock in each of the three quarters in 2017, we tested goodwill for impairment. The results of our quantitative goodwill impairment test resulted in a $670 million goodwill impairment in the second quarter of 2017, principally due to the decline in our profitability during the period (See Note 6). Results from our first and third quarter quantitative assessments did not result in additional goodwill impairment charges. Further declines in our profitability or share price could result in additional impairment in the future.  

ACQUISITION AND INTEGRATION COSTS



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

% Increase

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

 

Acquisition and integration costs

 

$

 

$

122 

 

$

(121)

 

(99)

%

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

% Increase

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

 

Acquisition and integration costs

 

$

15 

 

$

387 

 

$

(372)

 

(96)

%



 

 

 

 

 

 

 

 

 

 

 

 

Acquisition costs include financial advisory, accounting, regulatory, legal and other related costs. Integration costs include expenses that are incremental and directly related to the acquisition, which were incurred to integrate the network and information technology platforms. Integration costs also include costs to achieve synergies and operational efficiencies directly associated with the acquisition. 

We invested $19 million and $99 million in capital expenditures related to the CTF Acquisition during the nine months ended September 30, 2017 and 2016, respectively.

PENSION SETTLEMENT COSTS



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

% Increase

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 



 

 

 

 

 

 

 

 

 

 

 

 

Pension Settlement Costs

 

$

15 

 

$

 -

 

$

15 

 

100 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 



��

 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

% Increase

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 



 

 

 

 

 

 

 

 

 

 

 

 

Pension Settlement Costs

 

$

77 

 

$

 -

 

$

77 

 

100 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

The Pension Plan contains provisions that provide certain employees with the option of receiving a lump sum payment upon retirement. Frontier’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 Pension Plan’s net periodic pension benefit cost. During the three and nine months ended September 30, 2017, lump sum pension settlement payments

42


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

to terminated or retired individuals amounted to  $87 million and $449 million, which exceeded the settlement threshold of $224 million, and as a result, Frontier recognized non-cash settlement charges totaling $77 million during 2017. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial losses in the Pension Plan. Additional pension settlement charges will be required in the fourth quarter of 2017, the amount of which will be dependent on the lump sum benefit payments made during the fourth quarter.

RESTRUCTURING COSTS AND OTHER CHARGES



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

% Increase

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 



 

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs and

 

 

 

 

 

 

 

 

 

 

 

 

 

other charges

 

$

14 

 

$

11 

 

$

 

27 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

% Increase

 

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)

 



 

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs and

 

 

 

 

 

 

 

 

 

 

 

 

 

other charges

 

$

55 

 

$

11 

 

$

44 

 

NM

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31,

$ Increase

% Increase

($ in millions)

2021

2020

(Decrease)

(Decrease)

Restructuring costs and

other charges

$

$

48 

$

(46)

(96)

%

NM – Not meaningful

Restructuring costs and other charges consist of expenses related to changes in the composition of our business, including workforce reductions, the sale of business lines or divisions,transformation initiatives, other restructuring expenses, and corresponding changes to our retirement plans.plans resulting from a voluntary severance program.

RestructuringDuring the three months ended March 31, 2021, we incurred $2 million in expenses consisting of severance and employee costs resulting from workforce reductions.

For the three months ended March 31, 2020, the $48 million of restructuring costs and other charges increasedwere comprised of $8 million in costs related to transformation initiatives, $2 million in severance expense, and $38 million in consulting and advisory costs related to our balance sheet restructuring activities, respectively.

Following the third quarter of 2017 compared to the third quarter of 2016 primarily due to a reduction in the workforce of approximately 300 employees in the third quarter of 2017. 

Restructuring costs and other charges increased for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to a reduction in the workforce of approximately 850 employees and the loss on the salefiling of the Chapter 11 Cases, Frontier Secure Strategic Partnerships business.recorded all consulting and advisory costs related to our balance sheet restructuring activities outside of operating income in “Reorganization Items, net”.

OTHER NON-OPERATING INCOME AND EXPENSE

For the three months ended March 31,

$ Increase

% Increase

($ in millions)

2021

2020

(Decrease)

(Decrease)

Investment and other income, net

$

$

$

(3)

(60)

%

Pension settlement costs

$

-

$

(103)

$

103 

(100)

%

Reorganization items, net

$

(25)

$

-

$

(25)

100 

%

Interest expense

$

(89)

$

(383)

$

294 

(77)

%

Income tax expense (benefit)

$

87 

$

(23)

$

110 

NM

NM - Not meaningful

4360


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

OTHER NON-OPERATING INCOME AND EXPENSE



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

$ Increase

 

% Increase

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

Investment and other income (loss), net

 

$

 

$

 

$

(1)

 

(33)

%

Loss (gain) on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

 

and debt exchanges

 

$

(1)

 

$

 

$

(8)

 

(114)

%

Interest expense

 

$

381 

 

$

386 

 

$

(5)

 

(1)

%

Income tax benefit

 

$

(31)

 

$

(46)

 

$

15 

 

33 

%



 

 

 

 

 

 

 

 

 

 

 

 



 

For the nine months ended September 30,

 

$ Increase

 

% Increase

($ in millions)

 

2017

 

2016

 

(Decrease)

 

(Decrease)



 

 

 

 

 

 

 

 

 

 

 

Investment and other income, net

 

$

 

$

14 

 

$

(9)

 

(64)

%

Loss (gain) on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

 

and debt exchanges

 

$

89 

 

$

 

$

82 

 

NM

 

Interest expense

 

$

1,157 

 

$

1,145 

 

$

12 

 

%

Income tax benefit

 

$

(280)

 

$

(212)

 

$

(68)

 

(32)

%



 

 

 

 

 

 

 

 

 

 

 

 

NM - Not meaningful

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income, net

Investment and other income, net for the ninethree months ended September 30, 2016March 31, 2021 and 2020 included interest income$1 million of $12 million, primarily due to interest earned on restricted cash. The decrease of $9 million was driven by less restricted cash on hand in 2017.non-operating pension and OPEB income.

Loss on Extinguishment of Debt and Debt ExchangesPension settlement

During the ninethree months ended September 30, 2017,March 31, 2020, lump sum pension settlement payments to terminated or retired individuals amounted to $310 million, which exceeded the settlement threshold of $211 million, and as a result, Frontier recorded a loss on early extinguishment of debt of $89recognized non-cash settlement charges totaling $103 million primarily driven by a loss of $90 million resulting from debt buy backs during the second quarter, and slightly offset by a gain of $1 million resulting from buy backs in the third quarter.

During the nine months ended September 30, 2016, Frontier recorded a loss of $7 million resulting from the exchange of senior notes during the third quarter of 2016.

Interest expense

Interest expense for the three and nine months ended September 30, 2017 increased $5March 31, 2020.

Reorganization items, net

The Company has incurred and will continue to incur significant costs associated with the reorganization, primarily the write-off of certain debt issuance costs and net discounts, financing costs, and legal and professional fees. Subsequent to the Petition Date, these costs are being expensed as incurred and are expected to significantly affect our consolidated results of operations. During the three months ended March 31, 2021, Frontier incurred $25 million in reorganization costs associated with the restructuring of our balance sheet.

Interest expense

For the three months ended March 31, 2021 interest expense decreased $294 million, or 1%, and $12 million, or 1%77%, as compared to the three and nine months ended September 30, 2016. We incurred additional interest of $19 millionsame period in 20172020. Beginning on the $1,625Petition Date, we ceased recording interest expense for our unsecured debt. The contractual interest is $252 million term loan facility related to the CTF Acquisition. Our composite average borrowing rate as of September 30, 2017 and 2016 was 8.36% and 8.55%, respectively.

Income tax benefit

Income tax benefithigher than what we have recorded for our debt obligations for the three and nine months ended September 30, 2017 decreased $15 million and increased $68 million, as compared to theMarch 31, 2021.

Income tax benefit

For three and nine months ended September 30, 2016.March 31, 2021, Frontier recorded income tax expense of $87 million on pre-tax income of $147 million. The tax expense was driven primarily by the tax impact of pre-tax income and increases in valuation allowances on federal and state NOL carryovers, partially offset by tax deductible post-petition interest expense. The effective tax raterates on our pretax loss for the ninethree months ended September 30, 2017 was 26.5% asMarch 31, 2021 were 59.2% compared with 42.0%11.1% for the ninepretax loss for the three months ended September 30, 2016. The increase in income tax benefit was primarily due to the impact of the goodwill impairment incurred during the second quarter of 2017.    March 31, 2020.

44


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Net lossBasic and diluted net earnings (loss) attributable to Frontier common shareholders

Net lossBasic and diluted net earnings attributable to Frontier common shareholders for the third quarterfirst three months of 20172021 was $92$60 million, or ($1.19)earnings of $0.57 per share, as compared to a net loss of $134$186 million, or ($1.73)a loss of $1.78 per share, in the third quarter of 2016,  and net loss for the first ninethree months of 2017 of $936 million, or ($12.06) per share,2020. For 2021, our net income was driven by increased profitability resulting from reduced interest expense as compared to a net loss of $454 million, or ($5.87) per share for the first nine months of 2016. For the first nine months of 2017, the increase in net loss was primarily driven by the $532 million  (after-tax) goodwill impairment charge incurred during the second quarter of 2017.prior year.


61

Diluted net loss attributable to Frontier common shareholders

Diluted net loss attributable to Frontier common shareholders for the third quarter of 2017 was $92 million, or ($1.19) per share, as compared to a net loss of $135 million, or ($1.73) per share, in the third quarter of 2016,  and net loss for the first nine months of 2017 of $940 million, or ($12.07) per share, as compared to a net loss of $457 million, or ($5.87) per share for the first nine months of 2016. For the first nine months of 2017, the increase in net loss was primarily driven by the $532 million (after-tax) goodwill impairment charge incurred during the second quarter of 2017.


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(b) Liquidity and Capital Resources

Historically, our principal liquidity requirements have been to fund the costs of operations and expand our business, pay principal and interest obligations on our significant indebtedness and for capital expenditures to replace, upgrade, expand and improve our networks and infrastructure, and to integrate acquired businesses and to separate assets and systems for sale.

Analysis of Cash Flows

As of September 30, 2017,March 31, 2021, we had unrestricted cash and cash equivalents aggregating $286$2,107 million. Our primary source of funds duringFor the ninethree months ended September 30, 2017 was cash on hand, cash generated from operations, and cash received from issuance of our Term Loan B. For the nine months ended September 30, 2017,March 31, 2021, we used cash flow from operations, cash on hand, and cash from prior year borrowings to principally fund all of our cash investing and financing activities, which were primarily capital expenditures, dividends and debt repayments.expenditures.

At September 30, 2017,As of March 31, 2021, we had a working capital deficit of $531$4,304 million including $166 million of long-term debt due within one year, as compared to a working capital deficit of $788$4,486 million at December 31, 2016. 2020. The decrease inprimary driver for the working capital deficit is primarily due to a decrease in current liabilitiesat March 31, 2021 was the acceleration of $651 million, partially offset by a reduction in accounts receivablethe maturities of $158 million. our long-term debt that resulted from our filing of the Chapter 11 Cases.

Cash Flows provided byfrom Operating Activities

Cash flows provided by operating activities increased $223$188 million to $1,185$665 million for the ninethree months ended September 30, 2017March 31, 2021 as compared withto the prior year period.corresponding period in 2020. The overall increase in operating cash flows was primarily the result of increased profitability. Net income increased $246 million compared to the addition of our CTF Operations,first quarter loss recorded last year, partially offset by an unfavorable changes in working capital along with higher interest expense.accounts.

We received $4 million and $35paid less than $1 million in net cash tax refundstaxes during the ninethree months ended September 30, 2017March 31, 2021 and 2016, respectively.

In connection with the CTF Acquisition, Frontier recognized acquisition and integration costs of $15$1 million in net cash taxes during the first ninethree months of 2017ended March 31, 2020.

Cash Flows from Investing Activities

Cash flows used by investing activities increased $98 million to $380 million for the three months ended March 31, 2021 as compared to $387 million during the first nine monthscorresponding period in 2020. The primary driver of 2016. Interest expense of $581 millionthis increase was incurred during the first nine months of 2017 related to the September 2015 debt offering and the term loan credit agreement, dated as of August 12, 2015, with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, compared to $559 million in interest expense during the first nine months of 2016. Additionally, Frontier incurred $10 million of interest expense related to the Verizon Bridge Facility (as defined below) during the first nine months of 2016.increased capital expenditures.

Cash Flows used by Investing Activities

Capital Expenditures

For the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, our capital expenditures were $865$384 million and $1,059$286 million, respectively, including $19 million and $99 million, respectively, of integration related capital expenditures associated with the CTF Acquisition.respectively. Capital expenditures related to CAF Phase II are included in our reported amounts for capital expenditures. We anticipateThe driver for the increase in capital expendituresexpenditure was increased spending for business operationsfiber upgrades our existing copper network, a trend that we expect to be approximately $1.15 billioncontinue as we execute our strategy of investing in our fiber network.

Cash Flows from Financing Activities

Cash flows used by financing activities decreased $6 million to $1.2 billion in 2017,$7 million for the three months ended March 31, 2021 as compared to $1.26 billion in 2016.2020. The primary driver of this decreased principal payments of long-term debt.

62

45


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Cash Flows used byCapital Resources

Historically, a substantial portion of our liquidity needs arise from debt service on our outstanding indebtedness and provided from Financing Activities

Debt Reduction

Duringfunding the first nine monthscosts of 2017, Frontier usedoperations, working capital and capital expenditures. Our primary sources of cash are cash flows from operations, cash on hand forand proceeds from debt borrowings, including issuances of long-term debt and our $625 million undrawn borrowing capacity under the scheduled retirement of $328DIP Revolving Facility (as reduced by $90 million of debt, including $210 millionLetters of unsecured 8.25% senior notes at maturity,Credit.) We have assessed our current and contractual paymentsexpected funding requirements and our current and expected sources of principal for debtliquidity, and have determined, based on our forecasted financial results and financial condition as of $118 million. Additionally, Frontier used cash proceeds from the Term Loan B to retire $1,335 million of unsecured senior notes prior to maturity, consisting of $763 million of 8.875% Notes due 2020, $551 million of 8.500% Notes due 2020, $10 million of 9.250% Notes dueMarch 31, 2021, $6 million of 7.125% Notes due 2019, and $5 million of 8.125% Notes due 2018. During the first nine months of 2017, Frontier recorded a loss on early extinguishment of debt of $89 million driven primarily by premiums paid to retire certain notes and unamortized original issuance costs, slightly offset by discounts received on the retirement of certain notes.

During the first nine months of 2016, Frontier used cash on hand to retire an aggregate principal amount of $280 million of debt, $189 million of which was senior unsecured debt and $91 million of which was secured debt.

Subject to limitations contained in our indentures and credit facilities, we may from time to time make repurchases of our debt in the open market, through tender offers, by exercising rights to call or in privately negotiated transactions. We may also refinance existing debt or exchange existing debt for newly issued debt obligations.

Capital Resources

We believethat our operating cash flows and existing cash balances, existing revolving credit facility and access to the capital markets, as necessary, will be adequate to finance our working capital requirements, fund capital expenditures, make required debt interest and principal payments due under the Plan, pay taxes pay dividends to our stockholders, and support our short-term and long-term operating strategies formake other payments due under the next twelve months.Plan. A number of factors, including but not limited to, losses of customers, pricing pressure from increased competition, lower subsidy and switched access revenues, and the impact of economic conditions may negatively affect our cash generated from operations. As

Refer to “—Chapter 11 Cases and Other Related Matters” for more information on the terms of September 30, 2017, we had $42 millionthe Restructuring Support Agreement, the Chapter 11 Cases and the effects of debt maturing during the last three months of 2017; $743 million and $828 million of debt will mature in 2018 and 2019, respectively.both on our liquidity.

Term Loan, and Revolving Credit Facilities, and Secured Notes

DIP Revolving Facility

On February 27, 2017,October 8, 2020, Frontier entered into a first amended and restated credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto,DIP Revolving Facility, pursuant to which Frontier combined its revolvingthe senior secured superpriority debtor-in-possession credit agreement, dated as of June 2, 2014,October 8, 2020, by and its term loan credit agreement, datedamong Frontier, as the borrower and a debtor and debtor-in-possession under Chapter 11 of August 12, 2015. Under the JPM Credit Agreement,Bankruptcy Code, Goldman Sachs Bank USA, as further amended on June 15, 2017 by Increase Joinder No.1 (as so amended, the JPM Credit Agreement)administrative agent, JPMorgan Chase Bank, N.A. (JPM), Frontieras collateral agent, and each lender and issuing bank from time to time party thereto.

The DIP Revolving Facility has a $1,625 million senior secured term loan A facility (the Term Loan A) maturing on March 31, 2021, an $850 million undrawn secured revolving credit facility maturing on February 27, 2022 (the Revolver), and $1,500 million senior secured term loan B facility (the Term Loan B) maturing on June 15, 2024. The maturitiesmaturity of the Term Loan A,earlier of (x) the Revolver,date that is twelve months after the closing date of the DIP Revolving Facility and (y) the Term Loan B, in each case if still outstanding, will be accelerateddate of the substantial consummation of the Plan; provided that to the extent such substantial consummation has not occurred on or prior to the date referred to in the following circumstances: (i) if, 91 days beforeforegoing clause (x), primarily because any condition precedent set forth therein with respect to the procurement of regulatory approvals has not been satisfied (and other than any other conditions that by their nature can only be satisfied on the consummation date), the maturity date of any series of Senior Notes maturing in 2020, 2023 and 2024, more than $500 million in principal amount remains outstanding on such series; or (ii) if, 91 days beforeshall be extended by an additional six months.

At our election, the maturity date of the first series of Senior Notes maturing in 2021 or 2022, more than $500 million in principal amount remains outstanding, in the aggregate, on the two series of Senior Notes maturing in such year. The determination of interest rates for each of the facilities under the JPM Credit AgreementDIP Revolving Facility is based on margins over the Base Rate (as defined in the JPM Credit Agreement)alternate base rate or over LIBOR. The interest rate with respect to any LIBOR atloan is 3.250% (or 2.250% for alternate base rate loans).

Subject to customary exceptions and thresholds, the election of Frontier. Interest rate margins on the Term Loan A and Revolver (ranging from 0.75% to 1.75% for Base Rate borrowings and 1.75% to 2.75% for LIBOR borrowings) are subject to adjustment based on Frontier’s Total Leverage Ratio (as defined in the JPM Credit Agreement). Interest rate margins on the Term Loan B (2.75% for Base Rate borrowings and 3.75% for LIBOR borrowings) are not subject to adjustment. The security package under the JPM Credit AgreementDIP Revolving Facility includes pledges of the equity interests in certain of our subsidiaries, which as of the issue date is limited to certain specified pledged entities, substantially all of the unencumbered assets and properties (the DIP Collateral) of Frontier and Frontier Communications of Iowa, LLC, an Iowa limited liability company (Frontier Iowa), which such security interest in the DIP Collateral was granted solely pursuant to the DIP financing order issued by the Bankruptcy Court, which same assets also secure the New First Lien Notes. The DIP Revolving Facility is guaranteed by the same subsidiaries that guarantee the New First Lien Notes. After giving effect to $90 million of letters of credit formerly outstanding under the Revolver that were rolled into, replaced or otherwise accommodated for under the DIP Revolving Facility, the Company has $535 million of available borrowing capacity under the DIP Revolving Facility.

Upon the conversion date, subject to certain conditions, the DIP Revolving Facility shall convert into the Exit Revolving Facility with an aggregate principal amount of $625 million. The Exit Revolving Facility will be available on a revolving basis during the period commencing on the conversion date and guarantiesending on the date that is 4 years after the conversion date. The determination of interest rates for the Exit Revolving Facility is based on margins over

63


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

the alternate base rate or over LIBOR, at our election. The interest rate with respect to any LIBOR loan is 3.500% (or 2.500% for alternate base rate loans).

DIP Term Loan Facility

On October 8, 2020, Frontier entered into a credit agreement with JPM, as administrative agent and collateral agent and each lender from time to time party thereto (the DIP to Exit Term Credit Agreement). which provides for the $500 million Initial DIP Term Loan Facility. On November 25, 2020, Frontier entered into an incremental amendment to the DIP to Exit Term Credit Agreement, which provides for an additional senior secured superpriority DIP term loan facility in the aggregate principal amount of $750 million (the Incremental DIP Term Loan Facility and, together with the Initial DIP Term Loan Facility, the DIP Term Loan Facility).

The DIP Term Loan Facility has a maturity of the earlier of (x) the date that is twelve months after the closing date of the DIP Term Loan Facility and (y) the date of the substantial consummation of the Plan; provided that to the extent such substantial consummation has not occurred on or prior to the date referred to in the foregoing clause (x), primarily because any condition precedent set forth therein with respect to the procurement of regulatory approvals has not been satisfied (and other than any other conditions that by their nature can only be satisfied on the consummation date), the maturity date shall be extended by an additional six months; provided that the conversion date has occurred, the maturity date shall be the seventh anniversary of the closing date.

At our election, the determination of interest rates for the DIP Term Loan Facility are based on margins over the alternate base rate or over LIBOR. Pursuant to the Refinancing and Incremental Amendment (as defined herein), the interest rate with respect to any LIBOR loan is 3.75% or 2.75% for alternate base rate loans, with a 0.75% LIBOR floor.

Subject to certain exceptions and thresholds, the security package under the DIP Term Loan Facility includes pledges of the equity interests in certain of our subsidiaries, which as of the issue date is limited to certain specified pledged entities, substantially all personal property of Frontier subsidiaries. AsVideo and substantially all of September 30, 2017, the unencumbered assets and properties of Frontier and Frontier Iowa, which such security interest in the unencumbered assets and properties was granted solely pursuant to the DIP financing order issued by the Bankruptcy Court, which same assets also secure the New First Lien Notes. The DIP Term Loan Facility is guaranteed by the same subsidiaries that guarantee the New First Lien Notes. Upon the conversion date, the security package will no longer include the DIP Collateral.

Upon the conversion date, subject to certain conditions, the DIP Term Loan Facility shall convert into the Exit Term Loan Facility with an aggregate principal amount of $1,250 million. Pursuant to the Refinancing and Incremental Amendment, JPM also agreed to provide, subject to certain conditions, including emergence from the Chapter 11 Cases, an incremental $225 million exit term loan facility. For information on the Refinancing and Incremental Amendment to the DIP to Exit Term Credit Agreement, see “Subsequent Events Related to the Chapter 11 Cases.”

Terminated JP Morgan Credit Facilities

Frontier had a prepetition term loan facility and revolving credit facility was fully availablewith JPM, as administrative agent, and no borrowingsthe lenders party thereto. As noted above, as of December 31, 2020 all outstanding amounts drawn under these facilities have been paid in full and the agreements have been terminated.

Terminated CoBank Credit Facilities

Frontier had been made thereunder. The revolving credit facility is available for general corporate purposes but may not be used to fund dividend payments.

Frontier has two senior secured credit agreementsseparate prepetition term loan facilities with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other lenders party thereto: the first, for a $350 million senior term loan facilitylenders. All outstanding amounts drawn under these agreements have been paid in 2014 (the 2014 CoBank Credit Agreement), matures on October 24, 2019,full and the second, for a $315 million senior term loanagreements were terminated on or before March 15, 2019.

4664


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

facility drawn in October 2016 (the 2016 CoBank Credit Agreement), matures on October 12, 2021. We refer to the 2014 CoBank Credit Agreement and the 2016 CoBank Credit Agreement collectively as the CoBank Credit Agreements.

Repayment of the outstanding principal balance under each of the CoBank Credit Agreements is being made in quarterly installments ($9 million, with respect to the 2014 CoBank Credit Agreement, and $8 million, with respect to the 2016 CoBank Credit Agreement), in each case with the remaining outstanding principal balance to be repaid on the applicable maturity date. Borrowings under each of the CoBank Credit Agreements bear interest based on the margins over the Base Rate (as defined in the applicable CoBank Credit Agreement) or over LIBOR, at the election of Frontier.

On March 29, 2017, Frontier amended the 2014 and 2016 CoBank Credit Agreements. The amendments provide that interest rate margins under each of these facilities will range from 0.875% to 3.875% for Base Rate borrowings and 1.875% to 4.875% for LIBOR borrowings, subject to adjustment based on our Total Leverage Ratio, as defined in each credit agreement. The interest rate on each of the facilities as of September 30, 2017 was LIBOR plus 3.875%. In addition, the amendments provide for increases in the maximum Leverage Ratio and expansion of the security package identical to those contained in the February 2017 amendment and restatement of the August 2015 JPM credit agreement.

Letters of Credit Facility

Frontier has a Continuing Agreement for Standby Letters of Credit with Deutsche Bank AG New York Branch and Bank of Tokyo – Mitsubishi UFJ, LTD. (the LC Agreements)Agreement). Frontier also has capacity to issue letters of credit under the DIP Revolving Credit Facility up to the full facility amount. As of September 30, 2017, $129March 31, 2021, $49 million and $90 million of undrawn Standby Letters of Credit had been issued under the LC Agreements. BorrowingsAgreement and DIP Revolving Credit Facility, respectively. Letters of credit under the LC Agreement are secured byfully cash collateralized.

Covenants related to DIP Financing

The DIP Revolving Facility and DIP Term Loan Facility each include usual and customary negative covenants for DIP credit and DIP to exit loan agreements of this type, including covenants limiting Frontier and its restricted subsidiaries’ (other than certain covenants therein which are limited to subsidiary guarantors) ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and acquisitions, pay dividends and distributions and make payments in respect of certain material payment subordinated indebtedness, in each case subject to customary exceptions for credit and exit loan agreements of this type.

The DIP Revolving Facility includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under ERISA, change of control or damage to a pledgematerial portion of the stockcollateral.

The DIP Term Loan Facility includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under ERISA, upon the conversion date, unstayed judgments in favor of a third party involving an aggregate liability in excess of a certain threshold, change of control, upon the conversion date, specified governmental actions having a material adverse effect or condemnation or damage to a material portion of the collateral.

First Lien Notes due October 2027

On October 8, 2020, Frontier issued $1,150 million aggregate principal amount of First Lien Notes due October 2027, which mature on October 15, 2027, and bear interest at a rate of 5.875% per annum. Interest on the First Lien Notes due October 2027 is payable to holders of record semi-annually in arrears on April 15 and October 15 of each year, commencing April 15, 2021.

The notes were issued pursuant to an indenture, dated as of October 8, 2020 (the 2027 First Lien Indenture), by and among Frontier, the guarantors party thereto, the grantor party thereto, JPM, as collateral agent, and Wilmington Trust, National Association, as trustee, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.

Prior to the conversion date, the First Lien Notes due October 2027 are secured on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility and the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility. From the conversion date, the First Lien Notes due October 2027 are secured on a first-priority basis and pari passu with its senior secured credit facilities, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities and First Lien Notes due May 2028 on a first-priority basis and pari passu with its senior secured credit facilities and First Lien Notes due May 2028.

Frontier may redeem the First Lien Notes due October 2027 at any time, in whole or in part, prior to their maturity. If the notes are redeemed before October 15, 2023 the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption

65


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

date, plus a make-whole premium. If the notes are redeemed on or after October 15, 2023 the redemption price will be equal to the amounts set forth in the 2027 First Lien Indenture, together with any accrued and unpaid interest to the redemption date.

In addition, at any time before October 15, 2023, Frontier may redeem up to 40% of the First Lien Notes due October 2027 using the proceeds of certain equity offerings at a redemption price equal to 105.875% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.

In the event of a change of control triggering event, each holder of the First Lien Notes due October 2027 will have the right to require Frontier subsidiariesto purchase the notes at a purchase price equal to 101% of the principal amount of the First Lien Notes due October 2027, plus accrued and guarantiesunpaid interest, if any, to, but not including, the date of repurchase.

First Lien Notes due May 2028

On November 25, 2020, Frontier issued $1,550 million aggregate principal amount of the First Lien Notes due May 2028, which mature on May 1, 2028, and bear interest at a rate of 5.000% per annum. Interest is payable to holders of record semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2021.

The First Lien Notes due May 2028 were issued pursuant to an indenture, dated as of November 25, 2020 (the 2028 First Lien Indenture), by and among Frontier, the guarantors party thereto, the grantor party thereto, JPM, as collateral agent, and Wilmington Trust, National Association, as trustee, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.

Prior to the conversion date, the First Lien Notes due May 2028 are secured on a super-priority basis and pari passu with the DIP Revolving Facility and DIP Term Loan Facility, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility and the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and DIP Term Loan Facility. From the conversion date, the First Lien Notes due May 2028 are secured on a first-priority basis and pari passu with its senior secured credit facilities, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities and First Lien Notes due October 2027 on a first-priority basis and pari passu with its senior secured credit facilities and First Lien Notes due October 2027.

Frontier subsidiaries.may redeem the First Lien Notes due May 2028 at any time, in whole or in part, prior to their maturity. If redeemed before May 1, 2024 the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date, plus a make-whole premium. If the notes are redeemed on or after May 1, 2024, the redemption price will be equal to the amounts set forth in the 2028 First Lien Indenture, together with any accrued and unpaid interest to the redemption date.

In addition, at any time before May 1, 2024, Frontier may redeem up to 40% of the First Lien Notes due May 2028 using the proceeds of certain equity offerings at a redemption price equal to 105.000% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.

In the event of a change of control triggering event, each holder of the First Lien Notes due May 2028 will have the right to require Frontier to purchase the notes at a purchase price equal to 101% of the principal amount of the First Lien Notes due May 2028, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

66


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

New Second Lien Notes

On November 25, 2020, Frontier issued $1,000 million aggregate principal amount of the New Second Lien Notes, which mature on May 1, 2029, and bear interest at a rate of 6.750% per annum. Interest is payable to holders of record semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2021.

The New Second Lien Notes were issued pursuant to an indenture, dated as of November 25, 2020 (the New Second Lien Indenture, and together with the 2027 First Lien Indenture and the 2028 First Lien Indenture, the Secured Note Indentures), by and among Frontier, the guarantors party thereto, the grantor party thereto, and Wilmington Trust, National Association, as trustee and collateral agent, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.

Prior to the conversion date, the New Second Lien Notes are superpriority obligations secured on a second-priority lien junior to the DIP Revolving Facility, the DIP Term Loan Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility, the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028. From the conversion date, the New Second Lien Notes are secured on a second-priority basis junior to the DIP Revolving Facility, the DIP Term Loan Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities and existing first lien notes on a second-priority basis junior to its senior secured credit facilities and New First Lien Notes.

Frontier may redeem the New Second Lien Notes at any time, in whole or in part, prior to their maturity. If redeemed before May 1, 2024, the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date, plus a make-whole premium. If redeemed on or after May 1, 2024, the redemption price will be equal to the amounts set forth in the New Second Lien Indenture, together with any accrued and unpaid interest to the redemption date.

In addition, at any time before November 1, 2023, Frontier may redeem up to 40% of the New Second Lien Notes using the proceeds of certain equity offerings at a redemption price equal to 106.750% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.

In the event of a change of control triggering event, each holder of the New Second Lien Notes will have the right to require Frontier to purchase the notes at a purchase price equal to 101% of the principal amount of the New Second Lien Notes, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

Covenants related to our Secured Notes

Each of the Secured Note Indentures contain customary negative covenants, subject to a number of important exceptions and qualifications, including, without limitation, covenants related to incurring additional debt and issuing preferred stock; incurring or creating liens; redeeming and/or prepaying certain debt; paying dividends on stock or repurchasing stock; making certain investments; engaging in specified sales of assets; entering into transactions with affiliates; and engaging in consolidation, mergers and acquisitions. Certain of these covenants will be suspended during such time, if any, that the Secured Notes, as applicable, have investment grade ratings by at least two of Moody’s, S&P or Fitch. The Secured Note Indentures also provide for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the applicable series of Secured Notes to become or to be declared due and payable.

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Covenants related to other debt

The indentures governing our unsecured notes and other subsidiary indebtedness limit our ability to create liens on our assets securing indebtedness and our subsidiaries’ assets or merge or consolidate with other companies, our subsidiaries’ ability to borrow funds and to engage in change of control transactions, subject to important exceptions and qualifications.

On April 14, 2020, the Company Parties filed the Chapter 11 Cases. The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our debt covenants other than those now governing our DIP Revolving Facility, DIP Term Loan Facility, and Secured Note Indentures.

Shareholder Rights Plan

On July 1, 2019, the Board of Directors of Frontier Communications adopted a shareholder’s right plan (Rights Agreement) designed to protect the availability of the net operating loss carryforwards under the Internal Revenue Code (Code). The Rights Agreement was intended to reduce the likelihood of an ownership change under Section 382 of the Code by deterring any person or group of affiliated or associated persons from acquiring beneficial ownership of 4.9% or more of the outstanding common shares. The Rights Agreement will terminate upon emergence.

Chapter 11 Cases and Other Related Matters

Restructuring Support Agreement

On April 14, 2020, the Company Parties entered into the Restructuring Support Agreement with the Consenting Noteholders, pursuant to which the Consenting Noteholders agreed, subject to certain terms and conditions, containedto support the Restructuring of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to the Plan to be filed in the Chapter 11 Cases.

In accordance with the Restructuring Support Agreement, the Consenting Noteholders agreed, among other things, to:

(i)support the transactions (the Restructuring Transactions) described in, within the timeframes outlined in, and in accordance with the Restructuring Support Agreement;

(ii)not take any action, directly or indirectly, that is reasonably likely to interfere with acceptance, implementation, or consummation of the Restructuring Transactions;

(iii)vote each of its Senior Notes Claims (as defined in the Restructuring Support Agreement) to accept the Plan; and

(iv)not transfer Senior Notes Claims held by each Consenting Noteholders except with respect to limited and customary exceptions, including requiring any transferee to either already be bound or become bound by the terms of the Restructuring Support Agreement.

In accordance with the Restructuring Support Agreement, the Company Parties agreed, among other things, to:

(i)support and take all steps reasonably necessary and desirable to consummate the Restructuring Transactions in accordance with the Restructuring Support Agreement;

(ii)support and take all steps reasonably necessary and desirable to obtain entry of (a) the final orders of the Bankruptcy Court authorizing the relevant Company Parties’ entry into the documents governing a senior secured superpriority DIP financing facility, (b) the order of the Bankruptcy Court approving the disclosure statement related to the Plan pursuant to section 1125 of the Bankruptcy Code and (c) the Bankruptcy Court’s order confirming the Plan;

(iii)use commercially reasonable efforts to obtain any and all required governmental, regulatory, and/or third-party approvals for the Restructuring Transactions;

(iv)act in good faith and use commercially reasonable efforts to execute and deliver certain required documents and agreements to effectuate and consummate the Restructuring Transactions as contemplated by the Restructuring Support Agreement;

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

(v)operate their businesses in the ordinary course of business in a manner consistent with the Restructuring Support Agreement and past practice and use commercially reasonable efforts to preserve their businesses; and

(vi)not, directly or indirectly, object to, delay, impede, or take any other action to interfere with acceptance, implementation, or consummation of the Restructuring Transactions.

The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including the failure to meet specified milestones related to consummation of the Plan. In addition, the Restructuring Support Agreement shall automatically terminate on the Effective Date of the Plan once all conditions precedent to the Plan have been satisfied.

Chapter 11 Cases

As an initial step towards implementation of the Plan, on the Petition Date, the Company Parties filed the Chapter 11 Cases in the Bankruptcy Court. Each Company Party continues to operate its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476 (RDD).

In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business, however, we may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. To that end, on the Petition Date, the Company Parties filed the First Day Motions, which were approved after a final hearing held on May 22, 2020. Pursuant to the First Day Motions, the Bankruptcy Court authorized us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders: continue to operate our cash management system and honor certain prepetition obligations related thereto; maintain existing business forms; continue to perform intercompany transactions; obtain super priority administrative expense status to post-petition intercompany balances; pay certain prepetition claims of critical vendors, lien claimants and section 503(b)(9) of the Bankruptcy Code claimants in the ordinary course of business on a post-petition basis; pay prepetition employee wages, salaries, other compensation and reimbursable employee expenses and continue employee benefits programs; pay obligations under prepetition insurance policies, continue to pay certain brokerage fees; renew, supplement, modify or purchase insurance coverage; maintain our surety bond program; pay certain prepetition taxes and fees; honor certain prepetition obligations to customers and continue certain customer programs in the ordinary course of business; and pay or honor prepetition claims of content providers.

Plan and Disclosure Statement

On May 15, 2020, the Company Parties filed a proposed Joint Plan of Reorganization and related Disclosure Statement, each of which were amended on June 26, 2020, June 29, 2020, June 30, 2020, August 17, 2020 and August 21, 2020. On May 15, 2020, the Debtors also filed a proposed order approving the Disclosure Statement and various plan solicitation materials, including the solicitation and voting procedures, which was revised on June 29, 2020 (including modifications to some of the exhibits). On June 30, 2020, the Bankruptcy Court entered the modified order approving the adequacy of the Disclosure Statement and the solicitation and notice procedures and the forms of voting ballots and notices in connection therewith. The order established June 29, 2020 as the voting record date, July 2, 2020 as the solicitation launch date and July 31, 2020 as the voting deadline.

On August 21, 2020, the Company Parties filed the Plan with the Bankruptcy Court. On August 27, 2020, the Bankruptcy Court entered the Confirmation Order, which approved and confirmed the Plan. The Effective Date of the Plan will occur once all conditions precedent to the Plan have been satisfied. As previously announced, as of April 15, 2021, the Company had received PUC approvals or favorable determinations from all required states.

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

The Plan as approved and confirmed by the Bankruptcy Court provides for:

·the applicable (x) Debtors, with the consent of the Consenting Noteholders then holding greater than 50.1% of the aggregate outstanding principal amount of senior notes claims that are held by all Consenting Noteholders subject to the Restructuring Support Agreement as of such date (the Required Consenting Noteholders), or (y) Reorganized Debtors taking any action as may be necessary or advisable to effectuate the restructuring transactions described in the Plan and Restructuring Transactions Memorandum (as defined in the Plan), including;

·the execution, delivery, and filing of any organizational and governance documents for the Reorganized Company Parties;

·any and all actions necessary or appropriate to effectuate the Secured Creditor Settlement (as defined below); and

·the execution, delivery, and filing of all agreements, indentures, notes, filings, documents, and instruments delivered or entered into in connection with one or more DIP financing facilities, which shall be used to repay certain of the Company Parties’ prepetition secured indebtedness and shall convert into an exit facility on the Effective Date (a DIP-to-Exit Facility), and a DIP revolving financing facility, which shall, subject to certain conditions, convert into an exit revolving facility (a DIP-to-Exit Revolving Facility and, together with a DIP-to-Exit Facility, DIP Facilities);

·the final satisfaction, compromise, settlement, release, and discharge of claims arising under, derived from, secured by, based on, or related to any DIP-to-Exit Facility documents or DIP-to-Exit Revolving Facility documents, on the Effective Date in exchange for payment in full in cash or, at the Company Parties’ election, and solely to the extent permitted under DIP-to-Exit Facility documents or DIP-to-Exit Revolving Facility documents, as applicable, or as otherwise agreed, such holder’s pro rata share of the applicable exit facilities;

·on the Effective Date, issuance of takeback debt by one or more of our indentures, the CoBank Credit AgreementsReorganized Company Parties (the Takeback Debt), in a principal amount of $750 million, which shall include the following terms (which may be modified subject to requisite consent under the Plan):

·an interest rate that is either (a) no more than 2.50% higher than the interest rate of the next most junior secured debt facility to be entered into on the Effective Date if the Takeback Debt is secured on a third lien basis or (b) no more than 3.50% higher than the interest rate of the most junior secured debt facility to be entered into on the Effective Date if the Takeback Debt is unsecured;

·a maturity of no less than one year outside of the longest-dated debt facility to be entered into by the Reorganized Company Parties on the Effective Date, provided that in no event shall the maturity of the Takeback Debt be longer than eight years from the Effective Date;

·to the extent the Original Second Lien Notes claims are reinstated under the Plan, the Takeback Debt will be third lien debt, provided that to the extent the Original Second Lien Notes claims are paid in full in cash during the pendency of the Chapter 11 Cases or under the Plan, the Company Parties and the Required Consenting Noteholders will agree on whether the Takeback Debt will be secured or unsecured, within three business days of the Company Parties’ delivery to the Consenting Noteholders of a term sheet for the financing to repay the Original Second Lien Notes in full in cash that contains terms and conditions reasonably acceptable to the Company Parties and the Required Consenting Noteholders;

·the Takeback Debt amount is subject to downward adjustment by the Consenting Noteholders holding at least sixty-six and two-thirds percent of the aggregate outstanding principal amount of senior notes that are held by all Consenting Noteholders; and

·all other terms including, without limitation, covenants and governance, shall be reasonably acceptable to the Company Parties and the Required Consenting Noteholders; provided that such terms shall not be more restrictive than those in the indenture for the Original Second Lien Notes.

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

The Plan, among other things and subject to the terms of the Secured Creditor Settlement, contemplates the following treatment of claims against and interests in the Company Parties:

·at the option of the applicable Reorganized Company Party, holders of secured claims against a Company Party that, absent its secured status, would be entitled to priority in right of payment under section 507(a)(8) of the Bankruptcy Code (determined irrespective of time limitations) (the Secured Tax Claims) shall receive (i) payment in full in cash or (ii) payment in cash made in equal semi-annual cash payments commencing as of the Effective Date or as soon as reasonably practicable thereafter and continuing for five years, in an aggregate amount equal to such claim, together with interest at the applicable non-default contract rate under non-bankruptcy law;

·at the option of the applicable Company Party, holders of claims entitled to priority in right of payment under section 507(a) of the Bankruptcy Code other than Administrative Claims or Priority Tax Claims (each as defined in the Plan) shall receive payment in full in cash or such other treatment rendering such claims unimpaired;

·claims arising under, derived from, based on, or related to the Company’s $850 million Revolver shall be repaid on or before the Effective Date, including payment of interest payments calculated at the non-default contract rate through the earlier of the Effective Date or repayment of the Revolver in full in cash (which shall include accrued but unpaid postpetition interest);

·claims arising under, derived from, based on, or related to the JPM Credit Agreement include covenants that, among other things, place restrictionsshall be repaid on or before the Effective Date or reinstated on the following:Effective Date solely in the incurrenceevent that financing to repay such claims cannot be obtained, including payment of liensinterest payments calculated at the non-default contract rate through the earlier of the Effective Date or repayment of Frontier’s $1,740 million Term Loan B maturing on ourJune 15, 2024 in full in cash (which shall include accrued but unpaid postpetition interest);

·claims arising under, derived from, based on, or related to the Original First Lien Notes, issued pursuant to the indenture, dated as of March 15, 2019, by and our subsidiaries’ assets securing indebtedness;among the incurrenceCompany, as issuer, the subsidiary guarantors party thereto, JPM, as collateral agent, and Wilmington Trust, National Association, as successor trustee shall be repaid on or before the Effective Date or reinstated on the Effective Date, including payment of indebtedness by us and our subsidiaries;interest payments calculated at the non-default contract rate through the earlier of the Effective Date or repayment of the Original First Lien Notes in full in cash (which shall provide for the payment of dividendsaccrued but unpaid postpetition interest);

·claims arising under, derived from, based on, or related to the Original Second Lien Notes, issued pursuant to that certain indenture, dated as of March 19, 2018, by and among the Company, as issuer, the subsidiary guarantors party thereto, and Wilmington Savings Fund Society FSB, as successor trustee and successor collateral agent (the Original Second Lien Notes Trustee) shall be repaid on or before the Effective Date or reinstated on the Effective Date, including payment of interest payments calculated at the non-default contract rate as required through the earlier of the Effective Date or repayment of the Original Second Lien Notes in full in cash (which shall provide for the payment of accrued but unpaid postpetition interest);

·claims arising under, derived from, based on or related to (a) the 8.500% secured notes due November 15, 2031, issued by Frontier Southwest Incorporated pursuant to the Restated Indenture, dated June 1, 1940, by and among Frontier Southwest Incorporated, as issuer, and BOKF, NA, as successor trustee, and (b) Rural Utilities Service loan contracts due January 3, 2028 (collectively, the Subsidiary Secured Notes) shall be reinstated on the Effective Date, with holders of such claims receiving ordinary course cash interest payments at the applicable non-default contract rate through the Effective Date;

·claims arising under, derived from, based on or related to the 6.750% unsecured notes due May 15, 2027 issued by Frontier California Inc., the 6.860% unsecured notes due February 1, 2028 issued by Frontier Florida LLC, the 6.730% unsecured notes due February 15, 2028 issued by Frontier North Inc., the 8.400% unsecured notes due October 15, 2029 issued by Frontier West Virginia Inc. and the applicable indentures, debentures and purchase agreements associated therewith shall be reinstated on the Effective Date, with holders of such claims receiving ordinary course cash interest payments at the applicable non-default contract rate through the Effective Date;

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

·holders of claims arising under, derived from, based on, or related to the unsecured notes issued by the Company shall receive their (i) pro rata share of and interest in the Incremental Senior Notes Payment Amount (as defined in the Plan) and (ii) pro rata share of and interest in (after first reducing, for distribution purposes only, the amount of each such holder’s senior notes claim on a dollar-for-dollar basis by the amount of Incremental Senior Notes Payments, and solely to the extent actually paid): (a) 100% of the Reorganized Company’s new common stock, subject to dilution by the Reorganized Company’s management incentive plan; (b) the Takeback Debt, if any; and (c) the Surplus Cash (as defined in the Plan), if any;

·to the extent not already satisfied during the Chapter 11 Cases, holders of certain other claims that are not secured shall receive: (i) payment in full in cash; (ii) reinstatement; or (iii) such other treatment rendering such claims unimpaired, in each case as reasonably acceptable to the Company Parties and the Required Consenting Noteholders;

·holders of secured claims (other than claims arising under, derived from, based on or related to the Revolver, the Term Loan B, the Original First Lien Notes, the Original Second Lien Notes, the Subsidiary Secured Notes, the Secured Tax Claims or DIP Facilities) shall receive, at the option of the applicable CompanyParty: (i) payment in full in cash, (ii) reinstatement; (iii) delivery of the collateral securing such claim; or (iv) such other treatment rendering such claim unimpaired;

·claims subject to subordination under section 510(b) of the Bankruptcy Code shall be cancelled, released, discharged, and extinguished;

·all intercompany claims and intercompany interests shall be either (a) reinstated or (b) cancelled on the Effective Date; and

·all equity securities in the Company shall be cancelled, released and extinguished on the Effective Date.

For more information on the repayment of the Revolver, the Original First Lien Notes, the Original Second Lien Notes and Term Loan B, see —Term Loan and Revolving Credit Facilities and New Secured Notes.

Secured Creditor Settlement

The Plan will effectuate the settlement, release, compromise, discharge, and other restricted payments; selling or transferring assets;resolution of all outstanding claims, interests, and causes of action, including the maximum levelsObjection of our leverage and secured leverage ratios;the Ad Hoc First Lien Committee to the Debtors’ Third Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 857], the Objection of the Original Second Lien Notes Trustee to the Debtors’ Third Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 858], and the entry into mergers orSecond Lien Committee’s Joinder to the Original Second Lien Notes Trustee’s Objection [Docket No. 860], as between the Company Parties, the ad hoc committee of certain unaffiliated holders of Term Loan B claims and Original First Lien Notes claims (the First Lien Committee) represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP and PJT Partners LP, the Original Second Lien Notes Trustee, and the ad hoc committee of certain unaffiliated holders of Original Second Lien Notes claims represented by Quinn Emanuel Urquhart & Sullivan, LLP (the Second Lien Committee) (such settlement, the Secured Creditor Settlement). The Secured Creditor Settlement includes, among other changes in corporate control.  All of the above restrictions areterms and subject to important, detailed qualificationscertain conditions, the following key terms:

·holders of Term Loan B claims, Original First Lien Notes claims, and exceptions that are includedOriginal Second Lien Notes claims, and the First Lien Committee and Second Lien Committee, shall be deemed to have consented to reinstatement and shall not allege, and shall be deemed to have waived and foregone any objections to, any defaults arising from the transactions set forth in the Plan;

·holders of Term Loan B claims, Original First Lien Notes claims, and Original Second Lien Notes claims, and the First Lien Committee and Second Lien Committee shall be deemed to have consented to and shall not impede or otherwise delay the Debtors’ pursuit of certain debtor in possession/exit financing facilities;

·holders of Term Loan B claims, Original First Lien Notes claims, and Original Second Lien Notes claims, and the First Lien Committee and Second Lien Committee, shall waive and forgo any and all “make-whole” claims and claims to default interest under the JPM Credit Agreement, filedthe Original First Lien Notes indenture, and/or the Original Second Lien Notes indenture, as an exhibitapplicable;

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

·holders of Revolver claims, Term Loan B claims, Original First Lien Notes claims (including the First Lien Committee), the applicable agents, and the Original First Lien Notes trustee shall be deemed to our Quarterly Report on Form 10-Qhave waived any enforcement of any turnover or payment over rights under the Junior Lien Intercreditor and Subordination Agreement, dated as of March 19, 2018, against the Debtors, Original Second Lien Notes Trustee, or holders of Original Second Lien Notes claims with respect to certain obligations and amounts;

·the Company Parties shall make a $48 million payment to holders of Term Loan B claims, a $9 million payment for the quarterly period ended June 30, 2017benefit of holders of Original First Lien Notes claims, and, in the CoBankevent that the Effective Date occurs on or after March 31, 2021, an incremental payment of $8 million to holders of Term Loan B claims, subject to the provisions and conditions of the Plan with respect to such payments;

·the Company Parties or the Reorganized Company Parties, as applicable, shall pay in full in cash all reasonable First Lien Committee fees and Second Lien Committee fees that are due and owing under the applicable engagement letters; and

·all adequate protection currently in effect shall remain in effect until entry of a final adequate protection order and, upon the Company Parties’ entry into any DIP Facilities, the Bankruptcy Court shall enter a final adequate protection order granting, among other things, adequate protection to secured creditors in the form of (i) liens and claims on all collateral securing any future DIP Facilities, and (ii) cash payments in the amount of accrued interest.

DIP Financing

As previously disclosed, prior to the commencement of the Chapter 11 Cases, the Company and certain of its domestic subsidiaries entered into that certain Commitment Letter, dated April 14, 2020 (as amended by that certain Letter Agreement, dated April 28, 2020, by that certain Letter Agreement, dated May 12, 2020, by that certain Letter Agreement, dated June 10, 2020, by that certain Letter Agreement, dated June 29, 2020 and as further amended, modified or supplemented from time to time, the Original Commitment Letter) with Goldman Sachs Bank USA (GS Bank), Deutsche Bank AG New York Branch (DBNY), Deutsche Bank Securities Inc. (DBSI and, collectively with DBNY, DB), Barclays Bank PLC (Barclays), Morgan Stanley Senior Funding, Inc. (MSSF), Credit AgreementsSuisse AG, Cayman Islands Branch (CS) and Credit Suisse Loan Funding LLC (CSLF and, together with CS and their respective affiliates, Credit Suisse, and together with GS Bank, DB, Barclays and MSSF, the Original Commitment Parties), pursuant to which, and subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court, GS Bank, DBNY, Barclays, MSSF and CS committed to provide a portion of the senior secured superpriority revolving credit facility in an aggregate principal amount of $460 million, which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a longer term revolving exit facility. The Original Commitment Letter lapsed in accordance with its terms.

The Company and certain of its domestic subsidiaries entered into a Commitment Letter, dated August 13, 2020, with the Original Commitment Parties, which was amended and restated by that certain Amended and Restated Commitment Letter, dated August 28, 2020, with the Original Commitment Parties and JPM (collectively, the New Commitment Parties), pursuant to which, and subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court, GS Bank, JPM, DBNY, MSSF and CS committed to provide a portion of the $625 million DIP Revolving Facility, which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a longer term revolving exit facility.

On August 14, 2020, the Company and certain of its subsidiaries entered into an engagement letter, which was amended and restated on August 28, 2020 by that certain Amended and Restated Engagement Letter by and among the Company and certain of its subsidiaries and Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, DBSI, Barclays Capital Inc., Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC, in connection with a proposed issuance, offering and sale senior secured superpriority first lien and/or second lien notes to be issued by the Company or an affiliate thereof.

The Company and certain of its domestic subsidiaries also entered into that certain Engagement Letter, dated August 14, 2020, with GS Bank, which was amended and restated by that certain Amended and Restated Engagement

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Letter, dated August 28, 2020 with the New Commitment Parties, in connection with the DIP term loan facility, which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a term loan exit facility.

On August 28, 2020, the Company Parties filed the DIP Financing Motion with the Bankruptcy Court to approve the DIP Financing. On September 17, 2020, the Bankruptcy Court entered the final order approving the DIP Financing Motion.

In connection with the DIP Financing, on October 8, 2020, the Company issued $1,150 million aggregate principal amount of the First Lien Notes due October 2027, and entered into the $625 million DIP Revolving Facility and the $500 million Initial DIP Term Loan Facility. The Company used the proceeds from the offering of the First Lien Notes due October 2027, together with the proceeds of the Initial DIP Term Loan Facility and cash on hand, to (i) repay in full our prepetition $1,650 million aggregate principal amount of the Original First Lien Notes and (ii) pay related interest, fees and expenses.

Also, in connection with the DIP Financing, on November 25, 2020, the Company issued $1,550 million aggregate principal amount of the First Lien Notes due May 2028 and $1,000 million aggregate principal amount of the New Second Lien Notes, and borrowed an incremental $750 million under the DIP Term Loan Facility. The Company used the proceeds from these issuances and the incremental term loan borrowing, together with cash on hand to (i) repay all outstanding borrowings under our Term Loan B, (ii) repay in full the $1,600 million aggregate principal amount of the Original Second Lien Notes, and (iii) pay related interest, fees and expenses incurred in connection therewith.

For information about events related to the DIP Financing, refer to “—Capital Resources”.

Regulatory Approvals

As set forth in the Plan and the Disclosure Statement, in order to implement the restructuring contemplated by the Plan, the Company Parties must satisfy several conditions after confirmation of the Plan but prior to emergence from Chapter 11. Among other things, the Company Parties must obtain requisite regulatory approvals, including FCC and required PUC approvals in certain states. The Company is also the subject of ongoing investigations and reviews, which may lead to the imposition of financial sanctions and/or operational restrictions.

As previously announced, as of April 15, 2021, the Company had received PUC approvals or favorable determinations from all required states. In connection with the approvals, the FCC and certain state PUCs imposed conditions on the approval of the Restructuring Transactions, including commitments to make significant capital and operational expenditures, deploy broadband facilities and improve services.

Effects of the Restructuring and the Chapter 11 Cases on Our Liquidity

The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our the-outstanding obligations under the documents governing the JPM Credit Facilities, the Original First Lien Notes, the Original Second Lien Notes, our then-outstanding unsecured notes and debentures and the secured and unsecured debentures of our subsidiaries. However, pursuant to the Bankruptcy Code and as described in “Part II. Other Information—Item 1. Legal Proceedings”, the filing of the Bankruptcy Petitions automatically stayed most actions against the Company Parties, including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company Parties’ property. Accordingly, although the filing of the Bankruptcy Petitions triggered events of default under our existing debt obligations, creditors are stayed from taking action as a result of these defaults. Additionally, under Section 502(b)(2) of the Bankruptcy Code, and subject to the terms of the DIP financing order providing for adequate protection payments to certain of our prepetition lenders, we are no longer required to pay interest on our indentures and credit facilities accruing on or after the Petition Date.

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Additionally, in connection with the Chapter 11 Cases, we have incurred, and expect to continue to incur, significant professional fees and other costs in connection with the Chapter 11 Cases. There can be no assurance that our current liquidity is sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or to pursue confirmation of the Plan.

As set forth in the Plan, “Excess Cash” is the amount of estimated unrestricted balance sheet cash in excess of $150 million at the Effective Date, and includes net after-tax cash proceeds from the sale of the Northwest Operations (which amount to $1,129 million). As disclosed in the Debtors’ Plan Supplement, filed on March 1, 2021, the Debtors currently estimate $1,313 million of Excess Cash to be available as exhibitsof the Effective Date. As set forth in the Plan, on the Effective Date, each of the Debtors’ senior noteholders shall receive, among other things, its Pro Rata share of and interest in the Debtors’ “Surplus Cash.” Under the Plan, the “Incremental Senior Notes Payments” will be made from Excess Cash, prior to the determination of, and distribution of, Surplus Cash.

Subsequent Events Related to the Chapter 11 Cases

Refinancing and Incremental Amendment

On April 14, 2021, the Company entered into a Refinancing and Incremental Facility Amendment No. 2 (the Refinancing and Incremental Amendment), providing for an amendment to the DIP to Exit Term Credit Agreement, pursuant to which the DIP Term Loan Facility (and the exit term loan facility into which it will convert upon the Company Parties’ emergence from the Chapter 11 Cases) was repriced, effective on April 14, 2021. At the Company’s election, the determination of interest rates is based on margins over the alternate base rate or over LIBOR. Prior to the Refinancing and Incremental Amendment, the interest rate with respect to any LIBOR loan was 4.75% or 3.75% for alternate base rate loans, with a 1.00% LIBOR floor. Pursuant to the Refinancing and Incremental Amendment, the interest rate with respect to any LIBOR loan is 3.75% or 2.75% for alternate base rate loans, with a 0.75% LIBOR floor.

Pursuant to the Refinancing and Incremental Amendment, JPM also agreed to provide, subject to certain conditions, including emergence from the Chapter 11 Cases, an incremental exit term loan facility in an aggregate principal amount of $225 million (the New Incremental Commitment and the loans borrowed thereunder, the New Incremental Term Loans). As previously disclosed, the Company and certain of its subsidiaries had previously entered into a commitment letter with certain existing noteholders and/or their affiliates (the Original Commitment Parties) pursuant to which, and subject to the satisfaction of certain conditions, including the Company Parties’ emergence from the Chapter 11 Cases, the Original Commitment Parties agreed to provide the Company with an incremental term loan facility in an aggregate principal amount of $225 million (the Original Incremental Commitment). The New Incremental Commitment will be used in place of the Original Incremental Commitment, which was terminated on April 14, 2021. The New Incremental Term Loans are expected to be fungible with, and on the same terms as, the Company’s existing term loans under the DIP to Exit Credit Agreement and have the same CUSIP numbers and other identifiers.

Other Information Related to the Restructuring

Consistent with the company’s expected emergence from bankruptcy on April 30, 2021, the Company will consummate a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company and utilize substantially all of the Company’s NOLs.

See Note 3 of the Notes to Consolidated Financial Statements for more information on the Restructuring. See Note 10 for further detail of our Annual Report on Form 10-Kdebt obligations as of and for the fiscal year ended December 31, 2016. In addition, under the Certificate of Designations of our 11.125% Mandatory Convertible Preferred Stock, Series A, we would be restricted from paying dividends on our common stock if we failed to declare and pay dividends on our Series A Preferred Stock.2020.

75

As of September 30, 2017, we were in compliance with all of our indenture and credit facility covenants.

Dividends

We intend to continue to pay regular quarterly dividends on our common and preferred stock. Our ability to fund a regular quarterly dividend will be impacted by our ability to generate cash from operations. Holders of the Series A Preferred Stock are entitled to receive cumulative dividends at an annual rate of 11.125% of the initial liquidation preference of $100 per share, or $11.125 per year per share. Series A Preferred Stock dividends of $161 million were paid during the nine month periods ended September 30, 2017 and 2016.

On July 26, 2017, we announced that our Board of Directors declared a regular quarterly cash dividend of $0.60 per share of common stock, payable on September 29, 2017 to holders of record at the close of business on September 15, 2017. The Board of Directors also declared a regular quarterly cash dividend on Frontier’s 11.125% Series A Preferred Stock of $2.78125 per share, payable on September 29, 2017 to holders of record at the close of business on September 15, 2017.

On October 31, 2017, we announced that our Board of Directors declared a regular quarterly cash dividend of $0.60 per share of common stock, payable on December 29, 2017 to holders of record at the close of business on December 15, 2017. The Board of Directors also declared a regular quarterly cash dividend on Frontier’s 11.125%

47


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Mandatory Convertible Preferred Stock, Series A, of $2.78125 per share, payable on December 29, 2017 to holders of record at the close of business on December 15, 2017.

The declaration and payment of future dividends on our common stock is at the discretion of our Board of Directors, and will depend upon many factors, including our financial condition, results of operations, growth prospects, funding requirements, payment of cumulative dividends on Series A Preferred Stock, applicable law, restrictions in agreements governing our indebtedness and other factors our Board of Directors deems relevant.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial statements.

Contractual Obligations

Other than as disclosed elsewhere in this report with respect to the filing of the Chapter 11 Cases and the acceleration of substantially all of our debt as a result, there have been no material changes outside the ordinary course of business to the information provided with respect to our contractual obligations, including indebtedness and purchase and lease obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Future Commitments

OnIn April 29, 2015, the FCC released its right of first refusal offer of support to price cap carriers under the CAF Phase II program, which is intended to provide long-term support for broadband in high cost unserved or underserved areas. In June 2015, Frontier accepted the FCC’s CAF Phase II offer in 25 states, which provides for $332$313 million in annual support through 2020, including $49 million in annual support related to the properties acquired in the CTF Acquisition,2021, to make available 10 Mbps downstream/1 Mbps upstream broadband service to approximately 774,000 households across some of the 2925 states where we operate.

To the extent we do not enable the required number of households with 10 Mbps downstream/1 Mbps upstream broadband service by the end of the CAF Phase II term or we are unable to satisfy other FCC CAF Phase II requirements, Frontier would be required to return a portion of the funds previously received.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires management to make estimates and assumptions. There are inherent uncertainties with respect to such estimates and assumptions; accordingly, it is possible that actual results could differ from those estimates and changes to estimates could occur in the near term.

These critical accounting estimates have been reviewed with the Audit Committee of our Board of Directors.

Other than the updated indefinite-lived intangibles discussion below, thereThere have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. “Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.

Indefinite-lived Intangibles

Our indefinite-lived intangibles consist of goodwill and trade name, which were generated as a result of business combinations. We test for impairment of these assets annually as of December 31 or more frequently, whenever events occur or facts and circumstances change that make it more likely than not that the fair value of a reporting unit has been reduced below its carrying amount. Events that might indicate impairment include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, material negative changes in relationships with significant customers, and/or a significant decline in our stock price for a sustained period.

We early adopted ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) during the second quarter of 2017. In accordance with ASU 2017-04, our annual goodwill impairment test (and interim test if determined to be necessary) will consist of comparing the fair value of our reporting unit to its carrying value. To the extent that the carrying value exceeds fair value, an impairment will be recognized. 

For the purpose of our goodwill impairment test, we first assess qualitative factors to determine if it is more likely than not that fair value of the reporting unit is less than the carrying amount. If it is less, an additional quantitative evaluation must be performed. Our quantitative assessment consists of using a market multiples approach to determine fair value.  Marketplace company comparisons and analyst reports within the telecommunications industry have historically supported a range of fair values of multiples between 5.0x and 7.9x annualized EBITDA (defined as operating income,

48


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

net of acquisition and integration costs, pension/ OPEB expense, pension settlement costs, stock-based compensation expense, goodwill impairment, storm-related costs, and restructuring costs and other charges, as well as depreciation and amortization).

During 2017, our common stock has declined and traded at historically low prices. As a result, we tested goodwill for impairment in each of the three quarters in 2017. The second quarter quantitative assessment, as described above, resulted in a conclusion that the estimated enterprise fair value was lower than its carrying value, principally due to the decline in our profitability during the period. Accordingly, we recorded a goodwill impairment of $670 million in the second quarter of 2017. The first and third quarter quantitative assessments, did not result in goodwill impairment charges. In estimating the enterprise fair value we used 5.8x as the multiple in each of the three quarters in 2017. 

The market multiples approach that we use incorporates significant estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of other cost synergies. Our assessment includes many qualitative factors that require significant judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the need for, or size of, an impairment.  Continued declines in our profitability or cash flows or in sustained low trading prices of our common stock may result in further impairment. 

The enterprise fair value is sensitive to the amount of EBITDA generated by Frontier and the EBITDA multiple used in the calculation. Significant changes in the assumptions or estimates used in our impairment analyses, such as a reduction in profitability and/or cash flows, could result in a non-cash goodwill and indefinite-lived intangible asset impairment charge and materially affect our operating results. The market multiples approach is sensitive to changes in the estimated annual EBITDA, with each $100 million change equating to approximately $580 million of estimated enterprise value. Similarly, a 1% change in the multiple used would affect the estimated enterprise value by approximately $200 million.  Sustained low trading prices for our common stock could also affect the reconciliation of our market capitalization and indicate further impairment. 

We also considered whether the carrying values of finite-lived intangible assets and property plant and equipment may not be recoverable or whether the carrying value of certain finite-lived intangible assets were impaired, noting no additional impairment was present as of September 30, 2017.

Recent Accounting Pronouncements

See Note 2 of the Notes to Consolidated Financial Statements included in Part I of this report for additional information related to recent accounting literature.


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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

Regulatory Developments

On April 29,

In 2015, Frontier accepted the FCC released offers of support to price cap carriers under theFCC’s CAF Phase II program.offer in 29 states, which provides $332 million in annual support and in return the Company is committed to make broadband available to approximately 774,000 locations within its footprint. This amount included approximately 41,000 locations and $19 million in annual support related to the four states of the Northwest Operations, which were disposed on May 1, 2020. The intent of these offersCAF Phase II program is intended to provide long-term support for carriers for establishing and providing broadband service with at least 10 Mbps downstream/1 Mbps upstream speeds in high-cost unserved or underserved areas. Frontier accepted the CAF Phase II offer in 29 states, including our CTF properties, which provides for $332 million in annual support through 2020 and a commitment to make broadband available to approximately 774,000 households. CAF Phase II support is a successor to the approximately $156 million in annual USF frozen high-cost support that Frontier had been receiving prior to the CTF acquisition, and the $42 million in annual transitional USF frozen high-cost support that Verizon had been receiving in California and Texas. In addition to the annual support levels, these amounts also include frozen support phasedown amounts in states where the annualThe CAF II funding is less thanruns through and the prior annual frozen high-cost support funding. The frozen support phasedown support was $35 million in 2015 and $27 million in 2016, and is expected to be $17 million in 2017 and $6 million in 2018.Company must complete the CAF II deployment by December 31, 2021.

In February 2017,On January 30, 2020, the FCC adopted an order establishing the Rural Digital Opportunity Fund (RDOF), a competitive reverse auction to provide support to serve high cost areas. The FCC held the RDOF Phase I auction from October 29, 2020 through November 25, 2020, and announced the results on December 7, 2020. Frontier was awarded approximately $371 million over ten years to build gigabit-capable broadband over a fiber-to-the-premises network to approximately 127,000 locations across eight states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). Frontier submitted its Long Form application to the FCC on January 29, 2021 and, assuming the long-form application is granted by the FCC, anticipates that it will begin receiving funding on January 1, 2022, in which case, Frontier will be required to complete the buildout to the RDOF locations by December 31, 2027, with interim target milestones over this period.

After the FCC completes its current requirement to update its broadband maps with more granular broadband availability information, the FCC plans to hold a second auction for any remaining locations with the remaining funding, expected to be up to approximately $11.2 billion.

Privacy-related legislation has been considered in a number of states. Legislative and regulatory action could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. On June 28, 2018, the state of California enacted comprehensive privacy legislation that, effective as of January 1, 2020, gives California consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives consumers the right to opt-out of the sale of personal information. The law applies the same rules to all companies that collect consumer information. It is unclear the degree to which federal legislative or regulatory action may impact privacy issues.

On October 1, 2019, the D.C. Circuit Court largely upheld the FCC decision in its 2018 Restoring Internet Freedom Order further explainingto reclassify broadband as an “information service.” However, the Court invalidated the FCC’s preemption of a state’s ability to pass their own network neutrality rules California’s network neutrality provisions have gone into effect. It is unclear whether pending or future appeals or regulatory challenges will have any impact on federal or state net neutrality provisions.

On March 13, 2020, in response to the COVID-19 pandemic, over 550 providers of critical communications services, including Frontier, took the FCC’s Keep Americans Connected pledge pursuant to which providers agreed (i) not to terminate service to any residential or small business customers because of their inability to pay their bills due to the disruptions caused by the coronavirus pandemic; (ii) to waive any late fees that any residential or small business customers incur because of their economic circumstances related to the coronavirus pandemic; and (iii) to open its competitive bidding processWi-Fi hotspots to any American who needs them. The Keep Americans Connected Pledge expired on June 30, 2020; however, state and federal governments continue to distribute CAF Phase II fundingask companies to aid in those high-cost areas where price cap carriers declinedpandemic response. A number of the FCC’s offerstates we operate in have issued executive orders prohibiting the disconnection of support. This auction could present a new support and deployment opportunity.

On August 4, 2017, the FCC adopted a Public Notice initiating the pre-auction processservices for customers for the Connect America Fund Phase II auction. The Phase II auction will award up to $198 million annually for 10 years to service providers that commit to offer voicelength of the state of emergency and/or otherwise restrict the assessment of late fees during the pandemic. While certain customers have taken advantage of COVID-19 related relief programs, as of March 31, 2021, very few had past due balances beyond the point of normal disconnection. Given the unprecedented and broadband services to fixed locations in unserved high-cost areas;evolving nature of the auction will also account for other service elements such aspandemic and the minimum data speed provided and data usage allowances.  Theevolving response of multiple levels of government, the impact of potential changes on the

77

49


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

auctionCompany are not fully known at this time.

The Federal government has undertaken a number of measures to address the ongoing impacts of the COVID-19 pandemic and to facilitate enhanced access to high speed broadband. As part of the Consolidated Appropriations Act of 2021 passed in December 2020, Congress provided $3.2 billion in funding to help support access to broadband services. In furtherance of this objective, the Federal Communications Commission created the Emergency Broadband Benefit to provide an up to $50 (up to $75 on tribal lands) monthly benefit for qualifying low-income consumers to purchase broadband. Frontier is likelycurrently evaluating its participation in the program. In March 2021, Congress also passed the American Rescue Plan Act of 2021 which created a new $10 billion Coronavirus Capital Projects Fund that will be available to begin in 2018 though the exact timeframe is unknown.states for critical capital projects, including broadband infrastructure products, that directly enable work, education, and health monitoring. Frontier has not yet determined whether it will participate in any competitive bid processcannot say at this time and becauseif states will use these funds in ways that may benefit Frontier accepted virtually all of its available CAF II support up front, we expect the funding available within our footprint to be limited. 

On April 20, 2017, the FCC issued an Order that will significantly alter how Commercial Data Services are regulated once the rules go into effect. Specifically, the Order adopted a test to determine, on a county-by-county basis, whether price cap ILECs, like Frontier’s DS1 and DS3 services, will continue to be regulated. The test is likely to resultor create additional competition in deregulation in a substantial numberany of our markets. Once implemented,The American Rescue Plan Act of 2021 also included $7.2 billion in funding for schools and libraries (the Emergency Connectivity Fund) that will provide support for connectivity that enables remote learning. The FCC currently has an open proceeding to establish rules for this program. Frontier does not know the deregulation will allow Frontier to offer its DS1 and DS3 services in a manner that better responds to the competitive marketplace and allows for commercial negotiation. The areas that remain regulatedimpact this program may be subject to price fluctuations depending upon the price cap formula that year. Multiple parties have appealed and requested a stay of this Order. Frontier cannot predict the extent to which these regulatory changes will affect revenues at this point in time.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk in the normal course of our business operations due to ongoing investing and funding activities, including those associated with our pension plan assets. Market risk refers to the potential change in fair value of a financial instrument as a result of fluctuations in interest rates and equity prices. We do not hold or issue derivative instruments, derivative commodity instruments or other financial instruments for trading purposes. As a result, we do not undertake any specific actions to cover our exposure to market risks, and we are not party to any market risk management agreements other than in the normal course of business. Our primary market risk exposures from interest rate risk and equity price risk are as follows:

Interest Rate Exposure

Our exposure to market risk for changes in interest rates relates primarily to the interest-bearing portion of our pension investment portfolio and the related actuarial liability for pension obligations, as well as our floating rate indebtedness. As of September 30, 2017,  80%March 31, 2021, 93% of our total debt had fixed interest rates. We had no interest rate swap agreements in effect at September 30, 2017.March 31, 2021. We believe that our currently outstanding obligation exposure to interest rate changes is minimal.

Our discount rate assumption for our pension benefit obligation is determined at least annually, or whenever required, with assistance from our actuaries based on the pattern of expected future benefit payments and the prevailing rates available on long-term, high quality corporate bonds with durations approximate to that of our benefit obligation. As of March 31, 2021, our discount rate utilized in calculating our benefit plan obligation was 2.60%.

Our objectives in managing our interest rate risk are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, only $3,537 million7% of our outstanding borrowings at September 30, 2017March 31, 2021 have floating interest rates. Our undrawn $850The annual impact of 100 basis points change in the LIBOR would result in approximately $13 million revolving credit facility hasof additional interest ratesexpense, provided that float with the LIBO Rate, as defined. Consequently, we have limited material future earnings or cash flow exposures from changes in interest rates on our debt.LIBOR rate exceeds the LIBOR floor. An adverse change in interest rates would increase the amount that we pay on our variable rate obligations and could result in fluctuations in the fair value of our fixed rate obligations. Based upon our overall interest rate exposure, a near-term change in interest rates would not materially affect our consolidated financial position, results of operations or cash flows.

At September 30, 2017,March 31, 2021, the fair value of our long-term debt was estimated to be approximately $15.5$13.4 billion, based on quoted market prices, our overall weighted average borrowing rate was 8.36%8.066% and our overall weighted average maturity

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

(Unaudited)

was approximately six years. As of September 30, 2017,March 31, 2021, prior to the filing of the Chapter 11 Cases, there hashad been no significant change in the weighted average maturity applicable to our obligations since December 31, 2016.2020. However, the filing of the Chapter 11 Cases has accelerated the maturity of substantially all of our debt obligations. Refer to Note 10 for discussion of the impact of the Chapter 11 Cases on our debt obligations.

Equity Price Exposure

Our exposure to market risks for changes in equity security prices as of September 30, 2017March 31, 2021 is primarily limited to our pension plan assets. We have no other security investments of any significant amount.

Our Pension Plan assets decreased from $2,766$2,507 million at December 31, 20162020 to $2,604$2,484 million at September 30, 2017,March 31, 2021, a decrease of $162$23 million, or 6%1%. This decrease was primarily a result of benefit payments of $492$19 million and Plan expenses of $5 million, partially offset by positive investment returns of $270 million, net of investment management and administrative fees, and contributions in excess of the Differential (as defined below) of $60 million, during the first nine months of 2017.$1 million.

As part of the CTF Acquisition, Verizon was required to make a cash payment to Frontier for the difference in assets initially transferred by Verizon into the Pension Plan and the related obligation (the Differential). In the third quarter of 2017, we received the $131 million Differential payment from Verizon, and have remitted an equivalent amount to the

50


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Pension Plan as of September 30, 2017. As the Differential was reflected as a receivable of the Pension Plan at December 31, 2016, the cash funding had no impact to plan assets.

Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures

(a)Evaluation of disclosure controls and procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon this evaluation, our principal executive officer and principal financial officer concluded, as of the end of the period covered by this report, September 30, 2017,March 31, 2021, that our disclosure controls and procedures were effective.  effective in recording, processing, summarizing and reporting on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)

(b)Changes in internal control over financial reporting

We reviewed our internal control over financial reporting at September 30, 2017.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in an evaluation thereof that occurred during the thirdfirst fiscal quarter of 20172021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting.

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51


PART II. OTHER INFORMATION

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Item 1. Legal Proceedings

See Note 15On April 30, 2018, an amended consolidated class action complaint was filed in the United States District Court for the District of Connecticut on behalf of certain purported stockholders against Frontier, certain of its current and former directors and officers and the underwriters of certain Frontier securities offerings. The complaint was brought on behalf of all persons who (1) acquired Frontier common stock between February 6, 2015 and February 28, 2018, inclusive, and/or (2) acquired Frontier common stock or Mandatory Convertible Preferred Stock either in or traceable to Frontier’s offerings of common and preferred stock conducted on or about June 2, 2015 and June 8, 2015. The complaint asserted, among other things, violations of Section 10(b) of the NotesSecurities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10b-5 thereunder, Section 20(a) of the Exchange Act and Sections 11 and 12 of the Securities Act of 1933, as amended (the Securities Act), in connection with certain disclosures relating to Consolidated Financial Statements includedthe CTF Acquisition. The complaint sought, among other things, damages and equitable and injunctive relief. On March 8, 2019, the District Court granted in Part I, Item 1its entirety Frontier’s motion to dismiss the complaint. The District Court dismissed with prejudice a number of this report. Thereclaims and with respect to certain other claims that were not dismissed with prejudice, Plaintiffs were permitted to seek the court’s permission to refile. On May 10, 2019, Plaintiffs filed a motion for leave to amend along with a proposed amended complaint that is narrower in scope than the dismissed complaint. On March 24, 2020, the court denied plaintiffs’ motion for leave to amend, finding that they had not pled a viable claim. Plaintiffs appealed and the case was stayed by the Second Circuit Court of Appeals. We continue to dispute the allegations and intend to vigorously defend against such claims. In addition, shareholders have been no material changesfiled derivative complaints on behalf of the Company in Connecticut, California, and Delaware courts. The derivative complaints are based, generally, on the same facts asserted in the consolidated class action complaint and allege against current and former officers and directors of the Company (i) breach of fiduciary duty claims for disseminating false and misleading information to our legal proceedings fromshareholders, failure to manage internal controls, and failure to oversee and manage the information provided in Item 3. “Legal Proceedings” included in our Annual Report on Form 10-Kcompany; (ii) unjust enrichment and waste of corporate assets claims; and (iii) violations of Section 14(a) of the Exchange Act for the year ended December 31, 2016.  false and misleading statements. We also dispute the allegations in the derivative complaints described above and intend to vigorously defend against such claims. Given that all of these matters are in the initial stages of litigation, we are unable to estimate a reasonably possible range of loss, if any, that may result.

WeIn addition, we are party to various other legal proceedings (including individual, class and putative class actions)actions as well as federal and state governmental investigations) 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, consumer protection, trademark, copyright and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers. Litigation isSuch matters are subject to uncertainty and the outcome of individual matters is not predictable. However, we believe that the ultimate resolution of all suchthese matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

Most of our pending legal proceedings have been stayed as a result of filing the Chapter 11 Cases on April 14, 2020 and the effect of the automatic stay.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors described in Part 1, Item 1A.1A “Risk Factors” in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2016.    2020.


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PART II. OTHER INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the quarter ended September 30, 2017.March 31, 2021.

ISSUER PURCHASES OF EQUITY SECURITIES



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Period

 

 

Total Number of Shares Purchased

 

 

Average Price Paid per Share



 

 

 

 

 

 

 

July 1, 2017 to July 31, 2017

 

 

 

 

 

 

 

Employee Transactions (1)

 

 

625 

 

 

$

15.83 



 

 

 

 

 

 

 

August 1, 2017 to August 31, 2017

 

 

 

 

 

 

 

Employee Transactions (1)

 

 

222 

 

 

$

14.68 



 

 

 

 

 

 

 

September 1, 2017 to September 30, 2017

 

 

 

 

 

 

 

Employee Transactions (1)

 

 

68 

 

 

$

13.54 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Totals July 1, 2017 to September 30, 2017

 

 

 

 

 

 

 

Employee Transactions (1)

 

 

915 

 

 

$

15.38 



 

 

 

 

 

 

 

Period

Total Number of Shares Purchased

Average Price Paid per Share

January 1, 2021 to January 31, 2021

Employee Transactions (1)

-

$

-

February 1, 2021 to February 28, 2021

Employee Transactions (1)

-

$

-

March 1, 2021 to March 31, 2021

Employee Transactions (1)

-

$

-

Totals January 1, 2021 to March 31, 2021

Employee Transactions (1)

-

$

-

(1)Includes restricted shares withheld (under the terms of grants under employee stock compensation plans) to offset minimum tax withholding obligations that occur upon the vesting of restricted shares and the LTIP performance shares earned during the period.shares. Frontier’s stock compensation plans provide that the value of shares withheld shall be based on the average of the high and low price of our common stock on the date the relevant transaction occurs, for shares vestedoccurs.

Upon emergence from the Chapter 11 Cases on April 30, 2021, all equity interests in Frontier outstanding prior to May 2017.  Beginningthe Effective Date will be canceled, released, and extinguished, and we are of no further force or effect and Reorganized Frontier will issue a total of 244,400,000 shares of common stock to the holders of existing Senior Notes in May 2017, the valuepartial satisfaction of the allowed Senior Notes claims.

The shares withheld shall be based on the closing price of our common stock ondescribed above are exempt from registration under the dateSecurities Act pursuant to Section 1145 of the relevant transaction occurs.Bankruptcy Code (which generally exempts from such registration requirements the issuance of securities under a plan of reorganization).


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Item 4.  Mine Safety Disclosure

Not applicable.

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PART II. OTHER INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Item 6. Exhibits

(a)

Exhibits:

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS 101

XBRL Instance Document.The following materials from Frontier’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Loss; (iv) the Consolidated Statements of Equity (Deficit); (v) the Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.

101.SCH104

XBRL Taxonomy Extension Schema Document.Cover Page from Frontier’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in iXBRL and contained in Exhibit 101.

101.PRE

XBRL Taxonomy Presentation Linkbase Document.

101.CAL

XBRL Taxonomy Calculation Linkbase Document.

101.LAB

XBRL Taxonomy Label Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

SIGNATURE

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FRONTIER COMMUNICATIONS CORPORATION

(Registrant)

By: /s/ Donald Daniels

Donald Daniels

Senior Vice President and ControllerChief Accounting Officer

(Principal Accounting Officer)

Date: November 2, 2017April 30, 2021

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