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, 20172021

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

Picture 1

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC.

(Exact name of registrant as specified in its charter)

Delaware

06-061959686-2359749

(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(b) of the Act:

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

FYBR

The NASDAQ Stock Market LLC

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, 201729, 2021 was 78,458,000.244,408,000.


FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

Table of Contents

Index

Page No.

Part I. Financial Information (Unaudited)

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, 20172021 (Successor) and December 31, 20162020 (Predecessor)

2

Consolidated Statements of Operations for the three and nine months ended September 30, 20172021 (Successor), and 2016

3

Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 and 20162020 (Predecessor)

43

Consolidated StatementStatements of EquityOperations for the five months ended September 30, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), and the nine months ended September 30, 20172020 (Predecessor)

54

Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2021 (Successor), and the three months ended September 30, 2020 (Predecessor), and the five months ended September 30, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), and the nine months ended September 30, 2020 (Predecessor)

5

Consolidated Statements of Equity (Deficit) for the five months ended September 30, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), and the nine months ended September 30, 2020 (Predecessor)

6

Consolidated Statements of Cash Flows for the five months ended September 30, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), and the nine months ended September 30, 2017 and 20162020 (Predecessor)

67

Notes to Consolidated Financial Statements

78

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

3053

Item 3. Quantitative and Qualitative Disclosures about Market Risk

5074

Item 4. Controls and Procedures

5175

Part II. Other Information

Item 1. Legal Proceedings

5276

Item 1A. Risk Factors

5276

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

5376

Item 4.  Mine Safety Disclosure6. Exhibits

5377

Item 6.  ExhibitsSignature

5478

Signature

55

1


PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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



 

 

 

 

 

 



 

 

 

 

 

 



 

(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 



 

 

 

 

 

 

(Unaudited)

Successor

Predecessor

September 30, 2021

December 31, 2020

ASSETS

Current assets:

Cash and cash equivalents

$

1,211 

$

1,829 

Accounts receivable, less allowances of $49 and $130, respectively

452 

553 

Contract acquisition costs

-

97 

Prepaid expenses

94 

90 

Income taxes and other current assets

30 

85 

Total current assets

1,787 

2,654 

Property, plant and equipment, net

8,918 

12,931 

Other intangibles, net

4,307 

677 

Other assets

376 

533 

Total assets

$

15,388 

$

16,795 

LIABILITIES AND EQUITY (DEFICIT)

Current liabilities:

Long-term debt due within one year

$

15 

$

5,781 

Accounts payable

583 

540 

Advanced billings

200 

202 

Accrued other taxes

208 

204 

Accrued interest

125 

47 

Pension and other postretirement benefits

48 

48 

Other current liabilities

301 

318 

Total current liabilities

1,480 

7,140 

Deferred income taxes

372 

343 

Pension and other postretirement benefits

1,731 

2,195 

Other liabilities

424 

452 

Long-term debt

6,996 

-

Total liabilities not subject to compromise

11,003 

10,130 

Liabilities subject to compromise

-

11,565 

Total liabilities

11,003 

21,695 

Equity (Deficit):

Successor common stock, $0.01 par value (1,750,000 shares authorized,

244,407 issued and outstanding at September 30, 2021)

-

Predecessor common stock, $0.25 par value (175,000 authorized shares,

106,025 issued, and 104,793 outstanding at December 31, 2020)

-

27 

Additional paid-in capital

4,114 

4,817 

Retained earnings (deficit)

225 

(8,975)

Accumulated other comprehensive income (loss), net of tax

44 

(755)

Treasury common stock

-

(14)

Total equity (deficit)

4,385 

(4,900)

Total liabilities and equity (deficit)

$

15,388 

$

16,795 

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


2

2


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

2021

2020

Revenue

$

1,576 

$

1,726 

Operating expenses:

Network access expenses

177 

226 

Network related expenses

413 

431 

Selling, general and administrative expenses

421 

404 

Depreciation and amortization

273 

392 

Restructuring costs and other charges

Total operating expenses

1,292 

1,456 

Operating income

284 

270 

Investment and other loss, net

(37)

(14)

Reorganization items, net

-

(131)

Interest expense (See note 3)

(90)

(121)

Income before income taxes

157 

Income tax (benefit) expense

31 

(11)

Net income

126 

15 

Basic net earnings per share

attributable to Frontier common shareholders

$

0.52 

$

0.14 

Diluted net earnings per share

attributable to Frontier common shareholders

$

0.51 

$

0.14 

Total weighted average shares outstanding - basic

244,403 

104,526 

Total weighted average shares outstanding - diluted

245,667 

104,866 

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


3


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

($ 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 



 

 

 

 

 

 

 

 

 

 

 

 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

2021

2021

2020

Revenue

$

2,637 

$

2,231 

$

5,460 

Operating expenses:

Network access expenses

304 

264 

767 

Network related expenses

682 

566 

1,305 

Selling, general and administrative expenses

690 

537 

1,255 

Depreciation and amortization

452 

506 

1,204 

Loss on disposal of Northwest Operations

-

-

160 

Restructuring costs and other charges

19 

87 

Total operating expenses

2,147 

1,880 

4,778 

Operating income

490 

351 

682 

Investment and other income (loss), net

(39)

(29)

Pension settlement costs

-

-

(159)

Reorganization items, net

-

4,171 

(273)

Interest expense (See note 3)

(152)

(118)

(664)

-

Income (Loss) before income taxes

299 

4,405 

(443)

Income tax (benefit) expense

74 

(136)

(91)

-

Net income (loss)

225 

4,541 

(352)

Basic net earnings (loss) per share

attributable to Frontier common shareholders

$

0.92 

$

43.42 

$

(3.37)

Diluted net earnings (loss) per share

attributable to Frontier common shareholders

$

0.92 

$

43.28 

$

(3.37)

Total weighted average shares outstanding - basic

244,402 

104,584 

104,460 

Total weighted average shares outstanding - diluted

245,600 

104,924 

104,460 

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


4

3


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)

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

($ ($ 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)

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

2021

2020

Net income

$

126 

$

15 

Other comprehensive income, net of tax

155 

Comprehensive income

$

129 

$

170 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

2021

2021

2020

Net income (loss)

$

225 

$

4,541 

$

(352)

Other comprehensive income (loss), net of tax

44 

359 

(182)

Comprehensive income (loss)

$

269 

$

4,900 

$

(534)

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


5

4


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY

(DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

($ ($ 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

Retained

Other

Treasury

Total

Common Stock

Paid-In

Earnings

Comprehensive

Common Stock

Equity

Shares

Amount

Capital

(Deficit)

Income (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 (Predecessor)

106,025

27

4,817

(8,915)

(744)

(1,354)

(15)

(4,830)

Stock plans

-

-

1

-

-

-

-

1

Net income

-

-

-

4,481

-

-

-

4,481

Other comprehensive

income, net of tax

-

-

-

-

348

-

-

348

Cancellation of Predecessor equity

(106,025)

(27)

(4,818)

4,434

396

1,354

15

-

Issuance of Successor common stock

244,401

2

4,106

-

-

-

-

4,108

Balance at

April 30, 2021 (Predecessor)

244,401

$

2

$

4,106

$

-

$

-

-

$

-

$

4,108

Balance at

April 30, 2021 (Successor)

244,401

$

2

$

4,106

$

-

$

-

-

$

-

$

4,108

Stock plans

-

-

-

-

-

-

-

-

Net income

-

-

-

99

-

-

-

99

Other comprehensive

loss, net of tax

-

-

-

-

41

-

-

41

Balance at

June 30, 2021 (Successor)

244,401

$

2

$

4,106

$

99

$

41

-

$

-

$

4,248

Stock plans

6

-

8

-

-

-

-

8

Net income

-

-

-

126

-

-

-

126

Other comprehensive

loss, net of tax

-

-

-

-

3

-

-

3

Balance at September 30, 2021 (Successor)

244,407

$

2

$

4,114

$

225

$

44

-

$

-

$

4,385

For the nine months ended September 30, 2020

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)

Stock plans

-

-

-

-

-

(77)

-

-

Net loss

-

-

-

(181)

-

-

-

(181)

Other comprehensive

income, net of tax

-

-

-

-

(423)

-

-

(423)

Balance at June 30, 2020

106,025

$

27

$

4,816

$

(8,940)

$

(987)

(1,114)

$

(13)

$

(5,097)

Stock plans

-

-

2

-

-

(118)

(1)

1

Net loss

-

-

-

15

-

-

-

15

Other comprehensive

income, net of tax

-

-

-

-

155

-

-

155

Balance at

September 30, 2020

106,025

$

27

$

4,818

$

(8,925)

$

(832)

(1,232)

$

(14)

$

(4,926)

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

6

5


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

($ in millions)

Successor

Predecessor

For the

For the

For the

five months

four months

nine months

ended September 30,

ended April 30,

ended September 30,

2021

2021

2020

Cash flows provided from (used by) operating activities:

Net income (loss)

$

225 

$

4,541 

$

(352)

Adjustments to reconcile net income (loss) to net cash

provided from (used by) operating activities:

Depreciation and amortization

452 

506 

1,204 

Pension settlement costs

-

-

159 

Stock-based compensation expense

(1)

Amortization of deferred financing costs

-

-

13 

Non-cash reorganization items, net

-

(5,467)

85 

Other adjustments

(11)

Deferred income taxes

68 

(148)

(100)

Loss on disposal of Northwest Operations

-

-

160 

Change in accounts receivable

65 

36 

63 

Change in accounts payable and other liabilities

149 

(168)

334 

Change in prepaid expenses, income taxes and other assets

27 

46 

(80)

Net cash provided from (used by) operating activities

983 

(654)

1,492 

Cash flows provided from (used by) investing activities:

Capital expenditures

(646)

(500)

(825)

Proceeds from sale of Northwest Operations

-

-

1,131 

Proceeds on sale of assets

-

Other

Net cash provided from (used by) investing activities

(645)

(490)

315 

Cash flows provided from (used by) financing activities:

Long-term debt principal payments

(8)

(1)

(5)

Proceeds from long-term debt borrowings

-

225 

-

Repayment of revolving debt

-

-

(749)

Financing costs paid

-

(4)

(19)

Finance lease obligation payments

(9)

(7)

(18)

Other

-

(16)

-

Net cash provided from (used by) financing activities

(17)

197 

(791)

Increase (Decrease) in cash, cash equivalents, and restricted cash

321 

(947)

1,016 

Cash, cash equivalents, and restricted cash

at the beginning of the period

940 

1,887 

809 

Cash, cash equivalents, and restricted cash at the end of the period

$

1,261 

$

940 

$

1,825 

Supplemental cash flow information:

Cash paid during the period for:

Interest

$

121 

$

84 

$

548 

Income tax payments, net

$

27 

$

$

Reorganization items, net

$

-

$

1,397 

$

134 

(Unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

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.

7

6


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) Summary of Significant Accounting Policies:

(a) 

a) Basis of Presentation and Use of Estimates:

Frontier Communications CorporationParent, Inc. 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.

We operate in 1 reportable segment. Frontier provides both regulated and unregulated voice, data and video services to consumer, business, and wholesale customers and is typically the incumbent voice services provider in its service areas.

For our interim financial statements as of and for the period ended September 30, 2017,2021, 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 application of fresh start accounting, allowance for doubtful accounts,credit losses, asset impairments, indefinite-lived intangibles, depreciation and amortization, income taxes, business combinations, and pension and other postretirement benefits, among others. For information about our use of estimates as a result of fresh start accounting, see Note 4.

We operate in one reportable segment.Chapter 11 Bankruptcy Emergence

On April 14, 2020 (the “Petition Date”), Frontier provides both regulatedCommunications Corporation, a Delaware corporation (“Old Frontier”), and unregulated voice, data and video services to consumer, commercial and wholesale customers and is typicallyits subsidiaries (collectively with Old Frontier, the incumbent voice services provider in its service areas.

On July 10, 2017, we effected a one for fifteen reverse stock split“Debtors”), commenced cases under chapter 11 (the “Chapter 11 Cases”) of our common stock. The reverse stock split reducedtitle 11 of 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 changeUnited States Code (the “Bankruptcy Code”) in the par valueU.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On August 27, 2020, the Bankruptcy Court confirmed the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the common stock,Bankruptcy Code (the “Plan” or the “Plan of Reorganization”), which was filed with the Bankruptcy Court on August 21, 2020, and no fractional shares were issued. All shareon April 30, 2021 (the “Effective Date”), the Debtors satisfied the conditions precedent to consummation of the Plan as set forth in the Plan, and per share amountsthe Debtors emerged from the Chapter 11 Cases without any need for further action or order of the Bankruptcy Court. See Note 3 for additional information related to our emergence from Chapter 11 Cases.

Fresh Start Accounting

Upon emergence from bankruptcy, we adopted fresh start accounting in accordance with Accounting Standards Codification (ASC) Topic 852 – Reorganizations (ASC 852) and became a new entity for financial reporting purposes. As a result, the consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements on or before that date as indicated by the “black line” division in the financial statements and footnotes have been retroactively adjusted for all periods presentedfootnote tables, which emphasizes the lack of comparability between amounts presented. References to give effect“Successor” relate to our financial position and results of operations after the Effective Date. References to “Predecessor” refer to the reverse stock split. financial position and results

8


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

of operations of Old Frontier and its subsidiaries on or before the Effective Date. See Note 4 for additional information related to fresh start accounting.

During the Predecessor period, ASC 852 was applied in preparing the consolidated financial statements. ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. ASC 852 requires certain additional reporting for financial statements prepared between the bankruptcy filing date and the date of emergence from bankruptcy, including: (i) Reclassification of pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the liabilities are fully secured, to a separate line item on the consolidated balance sheet called, "Liabilities subject to compromise"; and (ii) Segregation of “Reorganization items, net” as a separate line on the consolidated statements of comprehensive loss, included within income from continuing operations.

Upon application of fresh start accounting, we allocated the reorganization value to our individual assets and liabilities, except for deferred income taxes, based on their estimated fair values in conformity with ASC Topic 805, Business Combinations. The amount of deferred taxes was determined in accordance with ASC Topic 740, Income Taxes. The Effective Date fair values of our assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets, see Note 4.

b)Changes in Accounting Policies:

The accounting policy differences between Predecessor and Successor include:

Universal Service Fund and Other Surcharges - Frontier collects various taxes, Universal Service Fund (USF) surcharges (primarily federal USF), and certain other taxes, from its customers and subsequently remits them to governmental authorities. The Predecessor recorded USF and other taxes on a gross basis on the consolidated statement of operations, included within “Revenue” and “Network access expense”. After emergence, the Successor records these USF and other taxes on a net basis.

Provision for Bad Debt – The Predecessor reported the provision for bad debt as a reduction of revenue. After emergence, the Successor reports bad debt expense as an operating expense included in “Selling, general, and administrative expenses”.

Contract Acquisition Costs - During the Predecessor period, certain commissions to obtain new customers were deferred and amortized over four years, which represented the estimated customer contract period. As a result of fresh start accounting, that assumption was reevaluated and the period of benefit for our reverse stock splitretail customers was determined to be less than one year. As such, these costs are now expensed as incurred.

Actuarial Losses on Defined Benefit Plans - Historically, actuarial gains (losses) were recognized as they occurred and included in “Accumulated other comprehensive income (loss)”, and were subject to amortization over the conversion ratesestimated average remaining service period of participants. As part of fresh start accounting, Frontier has made an accounting policy election to recognize these gains and losses immediately in the period they occur as Investment and other income (loss) on the consolidated statement of operations.

Government Grants Revenue - Certain governmental grants that were historically presented on a net basis as part of capital expenditures, are now presented on a gross basis and included in ”Revenue” on the consolidated statement of operations.

9


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Administrative Expenses – Historically, the Predecessor capitalized certain administrative expenses, that following emergence, are expensed during the period incurred and included in “Selling, general, and administrative expense” on the consolidated statement of operations.

c) Going Concern:

In accordance with the requirements of Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements Going Concern (ASU 2014-15)”, and ASC 205, “Presentation of Financial Statements”, the Company has the responsibility to evaluate at each reporting period, including interim periods, whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations. In its evaluation for this report, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due within one year following the date of issuance of this Quarterly Report on Form 10-Q.

During the pendency of the Chapter 11 Cases, the Predecessor’s ability to continue as a going concern was contingent upon a variety of factors, including the Bankruptcy Court’s approval of the Plan and the Predecessor’s ability to successfully implement the Plan. As a result of the effectiveness of the Plan, the Company believes it has the ability to meet its obligations for at least one year from the date of issuance of this Form 10-Q. Accordingly, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course business.

d) Impact of COVID-19:

The 2019 novel coronavirus (“COVID-19”) and measures taken to prevent its spread across the globe have impacted our Series A Preferred Stockbusiness in several ways. While overall the operational and financial impacts to Frontier of the COVID-19 pandemic as of September 30, 2021 were proportionately adjusted.not significant, we continue to closely monitor the evolution of the pandemic, including new COVID-19 variants, as well as the ongoing impact to our employees, our customers, our suppliers and our results of operations.

(b)  In an effort to reduce the economic impacts of COVID-19, the United States federal government has responded with multiple stimulus bills. In addition, some of the states we operate in have issued executive orders as a result of COVID-19 that further impact our business. State and federal governments and health authorities, may continue to recommend or mandate measures that could impact our operations.

Frontier’s response to COVID-19 has included comprehensive operational safety precautions for our employees and customers. To date, we have not experienced significant disruptions in our workforce due to COVID-19 related absences or legislative or regulatory changes. As a federal contractor of the U.S. government, we are required to comply with the recent executive order mandating employees be fully vaccinated by the required dates. We have implemented a program for our non-union employees to facilitate compliance with these requirements.

Through September 30, 2021, we have not experienced any material disruptions in our supply chain. However, the challenges and continuing uncertainty of the COVID-19 pandemic could result in further impacts to our business and operations, such as disruptions in our supply chain, inflation in pricing for key materials or labor, or other adverse changes. We continue to closely track our customers’ payment activity as well as external factors 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 consumer 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.

10


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

e) Revenue Recognition:

Revenue for data & Internet services, voice services, video services and switched and non-switched access services is recognized whenas services are provided or when products are delivered to customers. RevenueServices that isare billed in advance includesinclude monthly recurring network access services (including data services), special access services, and monthly recurring voice, video, and related charges. Revenue is recognized by measuring progress toward the complete satisfaction of the Company’s performance obligations. 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 fees

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 may differ from the timing of the customer’s payment.

Bundled Service and Allocation of Discounts

When customers purchase more than one service, revenue for each is determined by allocating the total transaction price based upon the relative stand-alone selling price of each service. We frequently offer service discounts as an incentive to customers, which reduce the total transaction price. Any incentives which are considered cash equivalents (e.g. gift cards) that are granted will similarly result in a reduction of the total transaction price. Cash equivalent incentives are accounted for on a portfolio basis and are recognized in the month they are awarded to customers.

Customer Incentives

In the process of acquiring and/or retaining customers, we may issue a variety of 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 separate performance obligations. While these incentives are free to the customer, a portion of the consideration received from the customer is ascribed to them based upon their related direct and incremental costsrelative stand-alone selling price. These types of incentives are initially deferred and recognized asaccounted for on a portfolio basis with both revenue and expense recognized in the month they are awarded to the customer. The earned revenue associated with these incentives is reflected in “Other” revenue while the associated costs are reflected in “Network access expenses”.

Upfront Fees

All non-refundable upfront fees assessed to our customers provide them with a material right to renew; therefore, they are deferred by creating a contract liability and amortized into “Data and Internet service” for fees charged to our wholesale customers and “Other revenue” for fees charged to all other customers over the average term ofcustomer life using a portfolio approach.

Customer Acquisition Costs

Sales commission expenses are recognized as incurred. According to ASC 606, incremental costs in obtaining a contract with a customer relationship. We recognizeare deferred and recorded as currenta contract asset if the period expenseof benefit is expected to be greater than one year. For our retail customers, this period of benefit has been determined to be less than one year. As such, the portion of installationCompany applies the practical expedient that allows such costs that exceeds installation fee revenue.to be expensed as incurred.

11


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Taxes, Surcharges and Subsidies

Frontier collects various taxes, Universal Service Fund (USF) surcharges (primarily federal USF), and certain other surcharges, from its customers and subsequently remits these taxes to governmental authorities. Substantially all of these taxes are recorded throughDuring the consolidated balance sheetpredecessor period, USF and presented on a net basis in our consolidated statements of operations. We also collect Universal Service Fund (USF)other surcharges from customers (primarily federal USF) that we have recorded on a gross basis in our consolidated statements of operationsamounted to $83 million for the four months ended April 30, 2021, and included within “Revenue” and “Network related expenses” of $52$58 million and $60 million, and $160 million and $161$165 million for the three and nine months ended September 30, 2017 and 2016, respectively.2020.

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 theserecognize FCC’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 $17 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 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 annually as of December 31, or more frequently as circumstances warrant, to determine whether there are any impairment losses. We test for goodwill impairment 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 evaluate and run our business operations, including similarities of customers, products and technology. We tested goodwill for impairment“Other current assets” as of September 30, 2017 as a result of the continued decline2021 and $33 million and $58 million are included in share price of“Other assets” on 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 resultsconsolidated balance sheet 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.2021 and December 31, 2020, respectively.

g)Definite and Indefinite Lived Intangible Assets:

Intangible assets are initially recorded at estimated fair value. Frontier amortizeshistorically amortized its acquired customer lists and certain other finite-lived intangible assets over their estimated useful lives on thean accelerated methodbasis. Upon emergence from bankruptcy, customer relationship intangibles were established for business and wholesale customers. These intangibles are amortized on a straight-line basis over their assigned useful life of sum of the years digits.between 11 and 16 years. Additionally, trademark and tradename assets established upon emergence are amortized on a straight-line basis over 5 years. We review such intangible assets at least annually as of December 31 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 & Equipment”, with corresponding liabilities recorded to “Other current liabilities”, and “Other liabilities” on our consolidated balance sheets. Upon emergence from bankruptcy, lease asset and liability balances were adjusted to fair value.

12


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(2) Recent Accounting Literature:

RecentRecently Adopted Accounting Pronouncements Not Yet Adopted

Revenue RecognitionFinancial Instrument Credit Losses

In May 2014, theJune 2016, The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers.”2016-13, “Financial Instruments – Credit Losses” (CECL or ASU 2016-13). 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. Upon emergence from the Chapter 11 Cases, effective as of April 30, 2021, Frontier isadopted the standard as part of its fresh start accounting policy changes. The adoption of CECL did not result in the initial stagesa material impact to our financial position or results of evaluating the potential impact this new standard may have on the consolidated financial statements.operations.

Compensation – Retirement BenefitsRecent Accounting Pronouncements Not Yet Adopted

Reference 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 standard was establishedprovides optional expedients, and allows for certain exceptions to improveexisting GAAP, for contract modifications triggered by the presentationexpected market transition of net periodic pension costcertain benchmark interest rates to alternative reference rates. The standard applies to contracts and net periodic postretirement benefit cost by requiringother arrangements that an employer disaggregatereference the service cost componentLondon Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. Frontier is evaluating the impact of periodic benefit costthe adoption of this standard, including optional expedients, on our consolidated financial statements.

(3) Emergence from the other componentsChapter 11 Cases:

On April 14, 2020, the Debtors commenced the Chapter 11 Cases in Bankruptcy Court. The Chapter 11 Cases were jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476 (RDD).

On May 15, 2020, the Debtors filed a proposed Joint Plan of net benefit cost.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 were 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 amendmentsorder 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 Debtors filed the Plan with the Bankruptcy Court. On August 27, 2020, the Bankruptcy Court entered the Order Confirming the Plan (the “Confirmation Order”).

On the Effective Date, the Debtors satisfied all conditions precedent required for consummation of the Plan as set forth in the update also provide explicit guidancePlan, the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases without any need for further action or order of the Bankruptcy Court.

On the Effective Date, pursuant to the terms of the Plan, all of the obligations under Old Frontier’s unsecured senior note indentures were cancelled, and in connection with emergence, Frontier issued 244,401,000 shares of common stock that were transferred to holders of the allowed senior notes claims (as defined by the Plan) and the Restructuring Support Agreement was automatically terminated.

13


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Reorganization items incurred as a result of the Chapter 11 Cases presented separately in the accompanying consolidated statements of operations were as follows:

Predecessor

For the four months

For the nine months

ended April 30,

ended September 30,

($ in millions)

2021

2020

Gain on settlement of liabilities subject to compromise

$

5,274 

$

-

Fresh start valuation adjustments

(1,038)

-

Write-off of debt issuance costs and

original issue net discount on debt subject to compromise

-

(85)

Debtor-in-possession financing costs

(15)

(19)

Professional fees and other bankruptcy related costs

(50)

(169)

Reorganization items, net

$

4,171 

$

(273)

The Company incurred significant costs associated with the 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. From the Petition Date to the Effective date, these costs were included in Reorganization items, net on howour consolidated statement of operations. For the periods prior to present the service cost componentPetition date and following the Effective Date, these costs were included in Restructuring costs and other componentscharges on our consolidated statement of net benefit costoperations. Refer to Note 12.

(4) Fresh Start Accounting:

In connection with our emergence from bankruptcy and in accordance with ASC Topic 852, we qualified for and adopted fresh start accounting on the income statementEffective Date. We were required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor, and allow only(ii) the service cost componentsreorganization value of net benefit costour assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims.

The adoption of fresh start accounting resulted in a new reporting entity for financial reporting purposes with no beginning retained earnings or deficit. The cancellation of all outstanding shares of Old Frontier common stock on the Effective Date and issuance of new shares of common stock of the Successor caused a related change of control of the Company under ASC 852.

Upon the application of fresh start accounting, Frontier allocated the reorganization value to its individual assets based on their estimated fair values. Each asset and liability existing as of the Effective Date, other than deferred taxes, have been stated at the fair value, and determined at appropriate risk-adjusted interest rates. Deferred taxes were determined in conformity with applicable accounting standards.

Reorganization value represents the fair value of the Successor’s assets before considering liabilities. Our reorganization value is derived from an estimate of enterprise value. Enterprise value represents the estimated fair value of an entity’s long-term debt and shareholders’ equity. In support of the Plan, the enterprise value of the Successor was estimated to be eligible for capitalization.approximately $12.5 billion. The new guidance is effective for annual periods beginning after December 15, 2017,valuation analysis was prepared using financial information and financial projections and applying standard valuation techniques, including interim periods within those annual periods and requires the presentationa risked net asset value analysis.

The Effective Date estimated fair values of certain of the income statement to be applied retrospectively.Company's assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets. As a result of the standard, pension settlement costs and certain benefit costs which are currently included in operating expense, would be reported as other non-operating expense and will no longer be capitalized.  This will have a material impact on previously reported operating income and may have a material impact to operating income in future periods, however, the impact to pre-tax income is not expected to be material.application of fresh

14

10


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

start accounting and the effects of the implementation of the Plan, the Company’s consolidated financial statements after April 30, 2021 are not comparable to the Company’s consolidated financial statements as of or prior to that date.

Recently Adopted Accounting Pronouncements

Reorganization Value

Share-Based Payments - ScopeAs set forth in the Plan of Modification Accounting

In May 2017,Reorganization, the FASB issued ASU No. 2017-09, Scopeenterprise value of Modification Accounting which amends the scope of modification accounting for share-based payment arrangements. This standard provides guidanceSuccessor Company was estimated to be between $10.5 billion and $12.5 billion. Based on the typesestimates and assumptions discussed below, the Company estimated the enterprise value to be $12.5 billion as of changesthe Effective Date. The Company based their enterprise value on projections which included higher capital expenditures to enhance the network and would result in higher revenue and Earnings before interest, taxes, depreciation, and amortization (“EBITDA”).

Management, with the assistance of its valuation advisors, estimated the enterprise value (“EV”) of the Successor Company, which was approved by the Bankruptcy Court, using various valuation methodologies, including a Discounted Cash Flow analysis (DCF), the Guideline Public Company Method (GPCM), and the Guideline Transaction Method (GTM). Under the DCF analysis, the enterprise value was estimated by discounting the projections’ unlevered free cash flow by the Weighted Average Cost of Capital (WACC), the Company’s estimated rate of return. A terminal value was estimated by applying a Gordon Growth Model to the terms or conditionsnormalized level of share-based payment awardscash flows in the terminal period. The Gordon Growth Model was based on the WACC and the perpetual growth rate, and the terminal value was added back to whichthe discounted cash flows.

Under the GPCM, the Company’s enterprise value was estimated by performing an entity would be requiredanalysis of publicly traded companies that operate in a similar industry. A range of Enterprise Value / EBITDA (EV/EBITDA) multiples were selected based on the financial and operating attributes of Frontier relative to apply modificationthe comparable publicly traded companies. The selected range of multiples were applied to the Company’s forecasted EBITDA to estimate the enterprise value of the Company.

The GTM approach is similar to the GPCM, in that it relies on EV/EBITDA multiples but rather than of publicly traded companies, the multiples are based on precedent transactions. A range of multiples was derived by analyzing the operating and financial attributes of the acquired companies and the implied EV/EBITDA multiples. This range of multiples were then applied to the forecasted EBITDA of the Company to arrive an enterprise value.

The following table reconciles the enterprise value to the estimated fair value of the Successor common stock as of the Effective Date:

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

Enterprise value

$

12,500 

Plus: Cash and cash equivalents and restricted cash

940 

Less: Fair value of debt and other liabilities

(7,267)

Less: Pension and other postretirement benefits

(1,774)

Less: Deferred tax liability

(291)

Fair value of Successor stockholders’ equity

$

4,108 

Shares issued upon emergence

244,401 

Per share value

$

17 

15


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The reconciliation of the Company’s enterprise value to reorganization value as of the Effective Date is as follows:

($ in millions)

Enterprise value

$

12,500 

Plus: Cash and cash equivalents and restricted cash

940 

Plus: Current liabilities (excluding debt, finance leases, and non-operating liabilities)

1,179 

Plus: Long term liabilities (excluding debt, finance leases, deferred tax liability)

307 

Reorganization value

$

14,926 

The adjustments set forth in the following unaudited Consolidated Balance Sheet reflect the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting under(reflected in the column “Fresh Start Adjustments”).

16


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The following table reflects the preliminary reorganization and application of ASC 718. Specifically, an entity would852 on our consolidated balance sheet as of April 30, 2021:

(Unaudited)

(Unaudited)

($ in millions)

Predecessor

Reorganization

Fresh Start

Successor

April 30, 2021

Adjustments

Adjustments

April 30, 2021

ASSETS

Current assets:

Cash and cash equivalents

$

2,059

$

(1,169)

(1)

$

-

$

890

Accounts receivable, net

516

-

-

516

Contract acquisition costs

91

-

(91)

(8)

-

Prepaid expenses

92

-

-

92

Income taxes and other current assets

45

-

(3)

(8)

42

Total current assets

2,803

(1,169)

(94)

1,540

Property, plant and equipment, net

13,020

-

(4,473)

(9)

8,547

Other intangibles, net

578

-

3,863

(10)

4,441

Other assets

526

(8)

(1)

(120)

(8)(11)

398

Total assets

$

16,927

$

(1,177)

$

(824)

$

14,926

LIABILITIES AND EQUITY (DEFICIT)

Current liabilities:

Long-term debt due within one year

$

5,782

$

(5,767)

(3)

$

-

$

15

Accounts payable

518

(6)

(2)

-

512

Advanced billings

208

-

-

208

Accrued other taxes

185

-

-

185

Accrued interest

81

(1)

(2)

-

80

Pension and other postretirement benefits

48

-

-

48

Other current liabilities

309

53

(2)

(36)

(11)

326

Total current liabilities

7,131

(5,721)

(36)

1,374

Deferred income taxes

389

70

(14)

(168)

(14)

291

Pension and other postretirement benefits

2,163

-

(437)

(13)

1,726

Other liabilities

440

-

(28)

(11)

412

Long-term debt

-

6,738

(3)

277

(12)

7,015

Total liabilities not subject to compromise

10,123

1,087

(392)

10,818

Liabilities subject to compromise

11,570

(11,570)

(7)

-

-

Total liabilities

21,693

(10,483)

(392)

10,818

Equity (Deficit):

Shareholders' equity of Frontier:

Successor common stock

-

2

(5)

-

2

Predecessor common stock

27

(27)

(4)

-

-

Successor additional paid-in capital

-

4,106

(5)

-

4,106

Predecessor additional paid-in capital

4,818

(4,818)

(4)

-

-

Retained earnings (deficit)

(8,855)

10,028

(6)

(1,173)

(15)

-

Accumulated other comprehensive income (loss), net of tax

(741)

-

741

(16)

-

Treasury common stock

(15)

15

(4)

-

-

Total equity (deficit)

(4,766)

9,306

(432)

4,108

Total liabilities and equity (deficit)

$

16,927

$

(1,177)

$

(824)

$

14,926


17


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Reorganization Adjustments

In accordance with the Plan of Reorganization, the following adjustments were made:

(1) Reflects net cash payments as of the Effective Date from implementation of the Plan as follows:

($ in millions)

Sources:

Net proceeds from Incremental Exit Term Loan Facility

$

220 

Release of restricted cash from other assets to cash

Total sources

228 

Uses:

Payments of Excess to Unsecured senior notes holders

(1,313)

Payments of pre-petition accounts payable and contract cure payments

(62)

Payments of professional fees and other bankruptcy related costs

(22)

Total uses

(1,397)

Net uses of cash

$

(1,169)

(2) Reflects the reinstatement of accounts payable and accrued expenses upon emergence, as well as payments made on the Effective Date.

(3) Reflects the conversion of our DIP-to-Exit term loan facility, DIP-to-Exit First Lien Notes, and DIP-to-Exit Second Lien Notes. Also represent the reclassification of the debt from current liabilities during bankruptcy to non-current liabilities based on the maturity of the debt recorded by the Company.

(4) Reflects the cancellation of Predecessor common stock, additional paid in capital and treasury stock.

(5) Reflects the issuance of Successor common stock and additional paid in capital to the unsecured senior note holders.

(6) Reflects the cumulative impact of reorganization adjustments.

($ in millions)

Gain on settlement of Liabilities Subject to Compromise

$

5,274 

Cancellation of Predecessor equity

4,754 

Net impact on accumulated deficit

$

10,028 

18


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(7) As part of the Plan of Reorganization, the Bankruptcy Court approved the settlement of claims reported within Liabilities subject to compromise in the Company’s Consolidated balance sheet at their respective allowed claim amounts.

The table below indicates the disposition of Liabilities subject to compromise:

($ in millions)

Liabilities subject to compromise pre-emergence

$

11,570 

Reinstated on the Effective Date:

Accounts payable

(66)

Other current liabilities

(59)

Less: total liabilities reinstated

(125)

Amounts settled per the Plan of Reorganization

Issuance of take back debt

(750)

Payment for settlement of unsecured senior noteholders

(1,313)

Equity issued at emergence to unsecured senior noteholders

(4,108)

Total amounts settled

(6,171)

Gain on settlement of Liabilities Subject to Compromise

$

5,274 

Fresh Start Adjustments

In accordance with the application of fresh start accounting, the following adjustments were made:

(8)Reflects unamortized deferred commissions paid to acquire new customers that are eliminated upon emergence as this is not apply modification accounting ifa probable future benefit for the Successor. Costs to obtain customers have been reflected as part of intangible assets. Adjustment also reflects the elimination of certain contract assets and contract liabilities.

(9)Property Plant & Equipment – Reflects the decrease in net book value of property and equipment to the estimated fair value as of the Effective Date.

Personal property valued consisted of outside and inside plant network equipment, computers and software, vehicles, office furniture, fixtures and equipment, computers and software, and construction-in-progress. The fair value of our personal property was estimated using the cost approach, while the income approach was considered to assess economic sufficiency to support asset values. As a part of the valuation process, the third-party advisors’ diligence procedures included using internal data to identify and value assets.

Real property valued consisted of land, buildings, and leasehold improvements. The fair value was estimated using the cost approach and sales comparison (market) approach, with consideration of economic sufficiency to support certain asset values.

19


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The following table summarizes the components of property and equipment, net as of April 30, 2021, and the fair value vesting conditions, and classificationas of the awards areEffective Date:

Predecessor

Fair Value

Successor

($ in millions)

Historical Value

Adjustment

Fair Value

Land

$

209 

$

40 

$

249 

Buildings and leasehold improvements

2,134 

(958)

1,176 

General support

1,635 

(1,462)

173 

Central office/electronic circuit equipment

8,333 

(7,364)

969 

Poles

1,359 

(843)

516 

Cable, fiber and wire

11,824 

(8,755)

3,069 

Conduit

1,611 

(282)

1,329 

Construction work in progress

1,048 

18 

1,066 

Property, plant and equipment

$

28,153 

$

(19,606)

$

8,547 

Less: Accumulated depreciation

(15,133)

15,133 

-

Property, plant and equipment, net

$

13,020 

$

(4,473)

$

8,547 

(10)Reflects 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 adjustment to recognize trademark, trade name and customer relationship.

For purposes of a reporting unit’s goodwill withestimating the carrying amountfair values of that goodwill. Undercustomer relationships, the amendments in this Update,Company utilized an entity should perform its annual,Income Approach, specifically, the Multi-Period Excess Earnings method, or interim, goodwill impairment test by comparingMPEEM. The MPEEM estimates fair value based on the present value of the incremental after-tax cash flows attributable only to the subject intangible assets after deducting contributory asset charges. The cash flows attributable to the customer relationships were adjusted for contributory asset charges related to the working capital, fixed assets, trade name/trademarks and assembled workforce. The discount rate utilized to present-value the after-tax cash flows was based on the overall weighted cost of capital of the Company as well as the asset specific risks of the intangible assets.

For purposes of estimating the fair value of trademarks and tradenames, an Income approach was used, specifically, the Relief from Royalty Method. The estimated royalty rates were historical third-party transactions regarding the licensing of similar type of assets as well as a reporting unit with its carrying amount. An entity should recognize an impairment charge forreview of historical assumptions used in prior transactions. The selected royalty rates were applied to the amountrevenue generated by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocatedtrademarks and tradenames 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 entity is required to disclosedetermine the amount of goodwill allocatedroyalty payments saved as a result of owning these assets. The forecasted cash flows were based on the Company’s projected revenues and the resulting royalty savings were discounted using a rate based on the overall weighted cost of capital of the Company as well as the asset specific risks of the intangible assets.

(11)Reflects the fair value adjustment to each reporting unitthe right of use assets and lease liabilities. Upon application of fresh start accounting, the Company revalued its right-of-use assets and lease liabilities using the incremental borrowing rate applicable to the Company after emergence from bankruptcy and commensurate with its new capital structure. In addition, the Company decreased the right-of-use assets to recognize $4 million related to the unfavorable lease contracts.

(12)Reflects the fair value adjustment to adjust Long-term debt as of the Effective Date. This adjustment is to state the Company's debt at estimated fair values.

(13)Reflects a zero remeasurement of pension and Other Postretirement Benefits related accounts as part of fresh start accounting considerations at emergence.

20


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(14)Reflects the impact of fresh start adjustments on deferred taxes. Frontier purchased the assets, including the stock of subsidiaries, of Frontier Communications Corporation (“Predecessor’s Parent”) at the time of emergence. The Predecessor’s Parent’s federal and state net operating loss carryforwards are expected to have been utilized as a result of the taxable gain realized upon emergence. To the extent not utilized to offset taxable gain, such net operating loss carryforwards are expected to be reduced in accordance with Section 108 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). As part of the taxable purchase, elections were made under Code section 338(h)(10) to step up the value of assets in certain subsidiaries to fair market value. All other subsidiaries carried over their deferred taxes. The adjustments reflect a $1.5 billion reduction in deferred tax assets for federal and state net operating loss carryforwards, a reduction in valuation allowance and a reduction in deferred tax liabilities.

(15)Reflects the cumulative impact of the fresh start adjustments as discussed above and the elimination of Predecessor accumulated earnings.

(16)Reflects the derecognition of accumulated other comprehensive loss.

(5) Revenue Recognition:

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

Data and Internet services include broadband services for consumer 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 well as a number of unified messaging services offered to our consumer and business customers. Voice services also include the long-distance voice origination and termination services that we provide to our business customers and other carriers;

Video services include revenues generated from services provided directly to consumer customers as linear terrestrial television services, through DISH® satellite TV service, and through partnerships with over-the-top (OTT) video providers. Video services also includes pay per view revenues, video on demand, equipment rentals, and video advertising. The Company has made the strategic decision to limit sales of new traditional TV services, focusing on our broadband products and OTT video options;

Other customer revenue includes switched access revenue, sales of customer 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 negative carrying amountterminate 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; and

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

21


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The following tables provide a summary of net assets. An entity still hasrevenues, by category. Prior year revenues in the optionfollowing tables include revenues for the Northwest Operations for the three and nine months ended September 30, 2020 (prior to performits disposal):

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Data and Internet services

$

834 

$

838 

Voice services

411 

500 

Video services

149 

186 

Other

99 

103 

Revenue from contracts with customers (1)

1,493 

1,627 

Subsidy and other revenue (2)

83 

99 

Total revenue

$

1,576 

$

1,726 

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Consumer (3)

$

800 

$

865 

Business and wholesale (3)

693 

762 

Revenue from contracts with customers (1)

1,493 

1,627 

Subsidy and other revenue (2)

83 

99 

Total revenue

$

1,576 

$

1,726 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Data and Internet services

$

1,390 

$

1,125 

$

2,644 

Voice services

694 

647 

1,595 

Video services

254 

223 

608 

Other

161 

125 

328 

Revenue from contracts with customers (1)

2,499 

2,120 

5,175 

Subsidy and other revenue (2)

138 

111 

285 

Total revenue

$

2,637 

$

2,231 

$

5,460 

22


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Consumer (3)

$

1,343 

$

1,133 

$

2,746 

Business and wholesale (3)

1,156 

987 

2,429 

Revenue from contracts with customers (1)

2,499 

2,120 

5,175 

Subsidy and other revenue (2)

138 

111 

285 

Total revenue

$

2,637 

$

2,231 

$

5,460 

(1)Lease revenue included in Revenue from contracts with customers was $16 million for the qualitative assessmentthree months ended September 30, 2021, $26 million for a reporting unitthe five months ended September 30, 2021, $21 million for the four months ended April 30, 2021, and $16 million and $50 million for the three and nine months ended September 30, 2020, respectively.

(2)Includes $15 million and $25 million in transition services revenue in connection with the divestiture of the Northwest Operations for the three and nine months ended September 30, 2020, respectively.

(3)Due to determine if the quantitative impairment test is necessary. Frontier early adopted this standardchanges in methodology during the second quarter of 2017 in conjunction with our goodwill impairment assessment. See Note 1 and Note 6 for further discussion. 2021, historical periods have been updated to reflect the comparable amounts.

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 ASUfollowing is parta summary of the FASB’s ongoing simplification initiative, which is designed to reduce costchanges in the contract assets and complexity while maintaining or improving the usefulness of the information provided 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 Frontier as of the third quarter of 2017.  During the nine months ended September 30, 2017, Frontier recognized $2 million of income tax expense and recorded a cumulative effect adjustment to beginning accumulated deficit of $1 million to recognize all unrecognized deferred tax benefits recorded 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 accordance with the new standard. contract liabilities:

Contract Assets

Contract Liabilities

($ in millions)

Current

Noncurrent

Current

Noncurrent

Balance at December 31, 2020 (Predecessor)

$

$

$

58 

$

20 

Revenue recognized included

in opening contract balance

(4)

-

(23)

(3)

Cash received, excluding amounts

recognized as revenue

-

-

22 

Balance at April 30, 2021 (Predecessor)

$

$

$

57 

$

19 

Fresh start accounting adjustments

(2)

(9)

(42)

(18)

Balance at April 30, 2021 (Predecessor)

$

-

$

-

$

15 

$

Balance at April 30, 2021 (Successor)

$

-

$

-

$

15 

$

Revenue recognized included

in opening contract balance

-

-

(13)

(1)

Credits granted, excluding amounts

recognized as revenue

-

-

17 

Reclassified between current

and concurrent

-

-

(1)

Balance at September 30, 2021 (Successor)

$

-

$

-

$

20 

$

1123


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Contract Assets

Contract Liabilities

($ in millions)

Current

Noncurrent

Current

Noncurrent

Balance at December 31, 2019 (Predecessor)

$

37 

$

$

41 

$

21 

Revenue recognized included

in opening contract balance

(27)

-

(47)

(10)

Cash received, excluding amounts

recognized as revenue

-

-

64 

Credits granted, excluding amounts

recognized as revenue

-

-

-

Reclassified between current

and concurrent

-

-

(1)

Balance at September 30, 2020 (Predecessor)

$

13 

$

$

59 

$

19 

(3)  Acquisitions:The unsatisfied obligations for retail customers consist of amounts in advance billings, which are expected to be earned within the following monthly billing cycle. Unsatisfied obligations for wholesale customers are based on a point-in-time calculation and determined by the number of circuits provided and the contractual price. These wholesale customer obligations change from period to period based on new circuits added as well as circuits that are terminated.

The CTF Acquisition

On April 1, 2016, Frontier acquiredfollowing table includes estimated revenue expected to be recognized in 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), pursuantfuture related to performance obligations that are unsatisfied (or partially unsatisfied) at the February 5, 2015 Securities Purchase Agreement, as amended. The final allocationend of the purchase price presented below represents the effect of recording the 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.reporting period:

($ 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 

Successor

($ in millions)

Revenue from contracts with customers

2021 (remaining three months)

$

385 

2022

512 

2023

323 

2024

152 

2025

81 

Thereafter

121 

Total

$

1,574 

The fair value estimates related 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 resulted 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. Other adjustments to the allocation of the purchase price for the CTF Acquisition during the first quarter of 2017 resulted in 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 value of the assets acquired and liabilities assumed by $2,606 million, which we recognized as goodwill. This goodwill is attributable to strategic benefits, including enhanced financial and operational scale, market diversification and leveraged combined networks that we expect to realize. This amount of goodwill associated with the CTF Acquisition will be deductible for income tax purposes.

12


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following unaudited pro forma financial information presents the combined results of operations of Frontier and the CTF Operations as if 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 purport 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 Acquisition

(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)

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

13


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(4)(6) 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 

Successor

Predecessor

   ($ in millions)

September 30, 2021

December 31, 2020

    

Retail and wholesale

$

424 

$

608 

Other

77 

75 

Less: Allowance for credit losses

(49)

(130)

Accounts receivable, net

$

452 

$

553 

24


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

As of April 30, 2021, the fair value of our net accounts receivable balances approximated their carrying values; therefore, no fair value adjustment for fresh start accounting was required. In estimating the fair values of receivables from certain of our wholesale customers, we evaluated ongoing billing disputes and the current status of settlement discussions. The final settlements with these customers may differ significantly from our estimates. See Note 5 for additional detail.

We maintain an allowance for doubtful accountscredit losses based on our estimate of ourthe estimated ability to collect accounts receivable. During 2017, we resolved settlements with carriers resulting in a reduction to our reserves of approximately $35 million. Bad debtThe allowance for credit losses is increased by recording an expense which is recorded as a reductionfor the provision for bad debts for retail customers, and through decreases to revenue at the time of billing for wholesale customers. The allowance is decreased when customer accounts are written off, or when customers are given credits.

The provision for bad debts was $14 million for the four months ended April 30, 2021, and $10 million and $16 million for the three and five months ended September 30, 2021, respectively.

In accordance with ASC 326, Frontier performs its calculation to estimate expected credit losses, utilizing rates that are consistent with the Company’s write offs (net of recoveries) because such events affect the entity’s loss given default experience.

Activity in the allowance for credit losses for the five months ended September 30, 2021 was as follows:follows:

($ in millions)

Successor

Balance at April 30, 2021

$

-

Provision for bad debt

(16)

Amounts charged to revenue

(30)

Write offs charged against the allowance

Other

(4)

Balance at September 30, 2021

$

(49)



 

 

 

 

 

 

 

 

 

 

 

 



 

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)  (7) 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 

Successor

Predecessor

($ in millions)

September 30, 2021

December 31, 2020

    

Property, plant and equipment

$

9,232 

$

27,695 

Less: Accumulated depreciation

(314)

(14,764)

Property, plant and equipment, net

$

8,918 

$

12,931 

25


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

As of April 30, 2021, as a result of fresh start accounting, we have adjusted our property, plant, and equipment balance to fair value. See Note 4 for additional information.

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

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Depreciation expense

$

191 

$

311 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Depreciation expense

$

318 

$

407 

$

941 



 

 

 

 

 

 

 

 

 

 

 

 



 

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 new estimated remaining useful lives for certain plant assets as of October 1, 2016, 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 (8) 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 as of December 31, 2020 was follows:

Predecessor

December 31, 2020

Gross Carrying

Accumulated

Net Carrying

($ in millions)

Amount

Amortization

Amount

    

Other Intangibles:

Customer base

$

4,332 

$

(3,781)

$

551 

Trade name

122 

-

122 

Royalty agreement

72 

(68)

Total other intangibles

$

4,526 

$

(3,849)

$

677 

26


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

As a result of fresh start accounting, on the Effective Date, intangible assets and related accumulated amortization of the Predecessor were eliminated. Successor intangible assets were recorded at fair value as of the Effective Date. See Note 4. The balances of these assets as of September 30, 2021 are as follows: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 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Successor

September 30, 2021

Gross Carrying

Accumulated

Net Carrying

($ in millions)

Amount

Amortization

Amount

    

Other Intangibles:

Customer Relationships - Business

$

800 

$

(30)

$

770 

Customer Relationships - Wholesale

3,491 

(91)

3,400 

Trademarks & Tradenames

150 

(13)

137 

Total other intangibles

$

4,441 

$

(134)

$

4,307 

Amortization expense was as follows:

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Amortization expense

$

82 

$

81 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Amortization expense

$

134 

$

99 

$

263 



 

 

 

 

 

 

 

 

 

 

 

 



 

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 



 

 

 

 

 

 

 

 

 

 

 

 

AmortizationFor the Predecessor, amortization expense was primarily represents the amortization offor 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 was an indefinite-lived intangible asset that was not subject to amortization.

(7)  Following our emergence from bankruptcy, we amortize our intangible assets on a straight line basis, over the assigned useful lives of 16 years for our wholesale customer relationships, 11 years for our business customer relationships, and 5 years for our trademarks and tradenames.

27


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(9) Divestiture of Northwest Operations:

On May 1, 2020, Old 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 were 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. During the first and second quarters of 2021, all proceeds previously held in escrow related to indemnification obligations, employee liabilities, and adjustments to working capital were received by the Company and as of September 30, 2021, there are no remaining proceeds held in escrow accounts included in Other current assets.

As of May 28, 2019, the Northwest Operations were included in Frontier’s continuing operations and designated as assets held for sale and liabilities related to assets held for sale and we discontinued recording depreciation on Property, Plant and Equipment and finite-lived intangible assets of this business as required by GAAP. Upon closing of the transaction on May 1, 2020, 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.

During the nine months ended September 30, 2020, Frontier recorded a loss on disposal of $160 million, associated with the sale of the Northwest Operations.

(10) Fair Value of Financial Instruments:

The following table summarizes the carrying amounts and estimated fair values for long-term debt at September 30, 20172021 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 is estimated based upon quoted market prices at the reporting date for those financial instruments.

In applying fresh start accounting, our debt obligations were recognized at fair value on our consolidated balance sheet as of April 30, 2021, as described further in Note 4.



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

September 30, 2017

 

December 31, 2016



 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

 

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value



 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

17,604 

 

$

15,515 

 

$

17,560 

 

$

17,539 

Successor

Predecessor

September 30, 2021

December 31, 2020

($ in millions)

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Total debt

$

7,011 

$

7,070 

$

16,769 

$

11,635 

(8)(

28

16


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(8)  (11) Long-Term Debt:

Chapter 11 Restructuring

The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all then-outstanding obligations under Old Frontier’s debt agreements and notes as follows:

the amended and restated credit agreement, dated as of February 27, 2017 (as amended, the JPM Credit Agreement),

the 8.000% first lien secured notes due April 1, 2027 (the Original First Lien Notes),

the 8.500% second lien secured notes due April 1, 2026 (the Original Second Lien Notes),

the unsecured notes and debentures and the secured and unsecured debentures of the Company’s subsidiaries.

As of the Effective Date, amounts that were outstanding under the JPM Credit Agreement, the Original First Lien Notes, and the Original Second Lien Notes have been repaid in full.

On the Effective Date, pursuant to the terms of the Plan, all of the obligations under Old Frontier’s unsecured senior note indentures were cancelled, and in connection with emergence, Frontier issued 244,401,000 shares of common stock that were transferred to holders of the allowed senior notes claims (as defined under the Plan).

Interest expense for the four months ended April 30, 2021 recorded on our Predecessor statements of operations was lower than contractual interest of $450 million, because we ceased accruing interest on the Petition Date in accordance with the terms of the Plan and ASC Topic 852.

Interest expense for the three and nine months ended September 30, 2020 recorded on our Predecessor statements of operations was lower than contractual interest of $372 million and $1,116 million, respectively, because we ceased accruing interest on the Petition Date in accordance with the terms of the Plan and ASC Topic 852.


29


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

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 

 

 

  

 

  

  

  

 

 

 

 

 

  

  

  

  

 

($ in millions)

Principal debt outstanding, December 31, 2020 (Predecessor)

$

16,769 

Issuance of incremental term loan

225 

Issuance of Takeback Notes

750 

Conversion of Unsecured Senior Notes

(10,949)

Repayment of long term subsidiary debt at maturity

(1)

Principal debt outstanding, April 30, 2021 (Predecessor)

6,794 

Less: Unamortized debt issuance costs

(2)

Less: Unamortized premium (discount)

(39)

Less: Long-term debt due within one year

(15)

Carrying amount of debt, April 30, 2021 (Predecessor)

6,738 

Fresh start accounting fair value adjustment

277 

(1)

Long-term debt, April 30, 2021 (Predecessor)

$

7,015 

Principal debt outstanding, April 30, 2021 (Successor)

$

6,794 

Repayment of long-term debt at maturity

(8)

Principal debt outstanding, September 30, 2021 (Successor)

6,786 

(2)

Less: Unamortized fair value adjustment

225 

Less: Long-term debt due within one year

(15)

Long-term debt, September 30, 2021 (Successor)

$

6,996 

(1)Upon emergence, Frontier adjusted the carrying value of our debt to fair value, in accordance with ASC 852. The adjustment consisted of the elimination of the existing unamortized debt issuance costs and unamortized discounts and recording a balance of $236 million as a fair value adjustment.The fair value accounting adjustment is being amortized into interest expense using the effective interest method. This amortization resulted in $11 million for the five months ended September 30, 2021.

*(2)Weighted average interest rate as of September 30, 2021 was 5.658%. Interest rate includes amortization of debt issuance costs and debt premiums or discounts. The interest ratesrate at September 30, 20172021 represent a weighted average of multiple issuances.


1730


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Additional information regarding our seniorsecured and unsecured long-term debt senior secured debtas of September 30, 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)

Successor

Predecessor

September 30, 2021

December 31, 2020

Principal

Interest

Principal

Interest

($ in millions)

Outstanding

Rate

Outstanding

Rate

Secured debt issued by Frontier

Term loan due 10/8/2027

$

1,468 

4.500% (Variable)

$

1,250 

5.750% (Variable)

First lien notes due 10/15/2027

1,150 

5.875%

1,150 

5.875%

First lien notes due 5/1/2028

1,550 

5.000%

1,550 

5.000%

Second lien notes due 5/1/2029

1,000 

6.750%

1,000 

6.750%

Takeback notes due 11/1/2029

750 

5.875%

-

IDRB due 5/1/2030

13 

6.200%

14 

6.200%

Secured debt issued by Frontier

5,931 

4,964 

Unsecured debt issued by Frontier

Senior notes due 4/15/2020

-

172 

8.500%

Senior notes due 9/15/2020

-

55 

8.875%

Senior notes due 7/1/2021

-

89 

9.250%

Senior notes due 9/15/2021

-

220 

6.250%

Senior notes due 4/15/2022

-

500 

8.750%

Senior notes due 9/15/2022

-

2,188 

10.500%

Senior notes due 1/15/2023

-

850 

7.125%

Senior notes due 4/15/2024

-

750 

7.625%

Senior notes due 1/15/2025

-

775 

6.875%

Senior notes due 9/15/2025

-

3,600 

11.000%

Debentures due 11/1/2025

-

138 

7.000%

Debentures due 8/15/2026

-

6.800%

Senior notes due 1/15/2027

-

346 

7.875%

Senior notes due 8/15/2031

-

945 

9.000%

Debentures due 10/1/2034

-

7.680%

Debentures due 7/1/2035

-

125 

7.450%

Debentures due 10/1/2046

-

193 

7.050%

Unsecured debt issued by Frontier

-

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

105 

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

6,786 

5.657% (1)

16,769 

8.188% (1)

Less: debt subject to compromise

-

(10,949)

Unamortized fair value adjustment

225 

-

Carrying amount of Total debt

$

7,011 

$

5,820 

(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.


31

18


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Credit Facilities and Term Loans

In September 2017, Frontier used proceeds from Term Loan B (see definition and note discussion below) to retire $24 million of 8.500% Notes due

Credit Agreements

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,Old Frontier entered into a first amended and restated credit agreementthat certain Credit Agreement with JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent and the lenderscollateral agent, and each lender from time to time party thereto (the “DIP to Exit Term Credit Agreement”), which provided for a senior secured superpriority DIP term loan facility in the aggregate principal amount of $500 million (the “Initial DIP Term Loan Facility”). On November 25, 2020, Old Frontier entered into an incremental amendment to the DIP to Exit Term Credit Agreement (the “Incremental DIP Term Loan Amendment”), which provided 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, Old Frontier entered into a Refinancing and Incremental Facility Amendment No. 2 (the “Refinancing and Incremental Amendment”), providing for, among other things, an amendment to the Amended and Restated Credit Agreement (as defined below) providing for the New Incremental Commitment (as defined below).

On October 8, 2020, Old Frontier also entered into the debtor-in-possession revolving facility (the “DIP Revolving Facility”), pursuant to which Frontier combined its revolving credit agreement,the Senior Secured Superpriority Debtor-In-Possession Credit Agreement, dated as of June 2, 2014,October 8, 2020, by and itsamong Old Frontier, as the borrower and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code, Goldman Sachs Bank USA, as administrative agent, JPM, as collateral agent and each lender and issuing bank from time to time party thereto (the “DIP to Exit Revolving Credit Agreement”).

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 credit agreement, datedfacility in an aggregate principal amount of $225 million (the “New Incremental Commitment”). The New Incremental Commitment replaced the original incremental commitment, with certain of old Frontier’s noteholders and/or their affiliates.

In connection with the emergence from the Chapter 11 Cases, on the Effective Date, Frontier Communications Holdings, LLC, a Delaware limited liability company and indirect subsidiary of the Company (the “Borrower” or the “New Frontier Issuer”, as of August 12, 2015. Under the JPMcase may be) entered into that certain Amended and Restated Credit Agreement with JPM, as further amended on June 15, 2017 by Increase Joinder No.1 (as so amended,administrative agent and collateral agent, Goldman Sachs Bank USA, as revolver agent, and each lender from time to time party thereto (the “Amended and Restated Credit Agreement”) to amend and restate the JPMDIP to Exit Term Credit Agreement), Frontier has a $1,625 million senior securedAgreement to, among other things, incorporate the DIP Revolving Facility from the DIP to Exit Revolving Credit Agreement, which incorporation resulted in the termination of the DIP to Exit Revolving Credit Agreement. Pursuant to the Amended and Restated Credit Agreement, the DIP Term Loan Facility was converted into an exit term loan A facility in an aggregate principal amount of $1,468 million after giving effect to the New Incremental Commitment (the Term“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 maturities of the Term Loan A, the Revolver,Facility”) and 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 date of the first series of Senior Notes maturing in 2021 or 2022, more than $500 million in principal amount remains outstanding,DIP Revolving Facility converted into an exit revolving facility in the aggregate onprincipal amount of $625 million (the “Revolving Facility”) and became subject to the two series of Senior Notes maturing in such year. Amended and Restated Credit Agreement.

Term Loan Facility

The Term Loan Facility’s maturity date is October 8, 2027. At the Borrower’s election, the determination of interest rates for each of the facilities under the JPM Credit AgreementTerm Loan 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 margin with respect to any LIBOR at the election of Frontier. Interest rate margins onloan under 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). 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 andFacility is 3.75% for LIBOR borrowings) are not subjectloans or 2.75% with respect to adjustment. Theany alternate base rate loan, with a 0.75% LIBOR floor.

Subject to certain exceptions and thresholds, the security package under the JPM Credit AgreementTerm Loan Facility includes pledges of the equity interests in certain Frontierof our 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,which 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), matures on October 24, 2019, and the second, for a $315 million senior term loan 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 eachissue date is limited to certain specified pledged entities and substantially all personal property of Frontier Video Services Inc., a Delaware corporation (“Frontier Video”), which same assets also secure 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 RateFirst Lien Notes (as defined inbelow). The Term Loan Facility is guaranteed by the applicable CoBank Credit Agreement) or over LIBOR, atsame subsidiaries that guarantee the election of Frontier.First Lien Notes.

32

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 CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

As

The Term Loan Facility includes customary negative covenants for loan agreements of Septemberthis type, including covenants limiting the Borrower 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 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.

Revolving Facility

The $625 million Revolving Facility will be available on a revolving basis until April 30, 2017, we were2025.

At the Borrower’s election, the determination of interest rates for the Revolving Facility is based on margins over the alternate base rate or over LIBOR. The interest rate margin with respect to any LIBOR loan under the Exit Revolving Facility is 3.50% or 2.50% with respect to any alternate base rate loans, with a 0% LIBOR floor.

Subject to customary exceptions and thresholds, the security package under the Revolving Facility includes pledges of the equity interests in compliance with allcertain of our indenture and credit facility covenants.

Our scheduled principal payments are as followssubsidiaries, which as of Septemberthe issue date is limited to certain specified pledged entities and substantially all personal property of Frontier Video, which same assets also secure the First Lien Notes. The Revolving Facility is guaranteed by the same subsidiaries that guarantee the First Lien Notes. After giving effect to $90 million of letters of credit previously outstanding, the Borrower has $535 million of available borrowing capacity under the Revolving Facility.

The Revolving Facility includes customary negative covenants for loan agreements of this type, including covenants limiting the Borrower 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 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.


33


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Senior Secured Notes

Second Lien Notes due 2030

On October 13, 2021, New Frontier Issuer issued $1.0 billion aggregate principal amount of 6.000% Second Lien Secured Notes due 2030 (the “Second Lien Notes due 2030”) in an offering pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended. The Company intends to use the net proceeds of this offering to fund capital investments and operating costs arising from the Company’s fiber build and expansion of its fiber customer base, and for general corporate purposes.

The Second Lien Notes due 2030 were issued pursuant to an indenture, dated as of October 13, 2021 (the “Second Lien 2030 Indenture”), by and among the Issuer, the guarantors party thereto, the grantor party thereto and Wilmington Trust, National Association, as trustee and as collateral agent.

Second Lien Notes due May 2029

In connection with the DIP financing, on November 25, 2020, Old Frontier issued $1.0 billion aggregate principal amount of 6.750% Second Lien Secured Notes due May 1, 2029 (the “Second Lien Notes due May 2029”).

The Second Lien Notes due May 2029 were issued pursuant to an indenture, dated as of November 25, 2020 (the “Second Lien May 2029 Indenture”), by and among Old Frontier, the guarantors party thereto, the grantor party thereto and Wilmington Trust, National Association, as trustee and as collateral agent.

On the Effective Date, in accordance with the Second Lien May 2029 Indenture and the Plan, New Frontier Issuer entered into a supplemental indenture with Wilmington Trust, National Association, as trustee, and assumed the obligations under the Second Lien Notes due May 2029 and the Second Lien May 2029 Indenture.

Second Lien Notes due November 2029 or “Takeback Notes”

On April 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 

2021, New Frontier Issuer issued $750 million aggregate principal amount of 5.875% Second Lien Secured Notes due November 2029 (the “Second Lien Notes due November 2029” or the “Takeback Notes”) pursuant to an indenture, dated as of April 30, 2021 (the “Takeback Notes Indenture”), by and among New Frontier Issuer, the guarantors party thereto, the grantor party thereto and Wilmington Trust, National Association, as trustee and as collateral agent. At Old Frontier’s direction, the Takeback Notes were issued to holders of claims arising under, derived from, based on, or related to the unsecured notes issued by Old Frontier in partial satisfaction of such claims.

(9) The Second Lien Notes due 2030, the Second Lien Notes due May 2029 and the Takeback Notes are collectively referred to as the Second Lien Notes. The Second Lien 2030 Indenture, the Second Lien May 2029 Indenture and the Takeback Notes Indenture are collectively referred to as the Second Lien Notes Indentures. The Second Lien Notes and the First Lien Notes (as defined below) are referred to herein collectively as the “Notes”.

The Second Lien Notes are secured by a second-priority lien, subject to permitted liens, by all the assets that secure New Frontier Issuer’s obligations under the Term Loan Facility, the Revolving Facility and the First Lien Notes (as defined below).

The Second Lien Notes 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 Second Lien Notes have investment grade

34


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

ratings by at least two of Moody’s, S&P or Fitch. The Second Lien Notes Indentures 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 Second Lien Notes to become or to be declared due and payable.

First Lien Notes

In connection with the DIP financing, (a) on October 8, 2020, Old Frontier issued $1,150 million aggregate principal amount of 5.875% First Lien Secured Notes due October 15, 2027 (the “First Lien Notes due 2027”) and (b) on November 25, 2020, Old Frontier issued $1,550 million aggregate principal amount of 5.000% First Lien Secured Notes due May 1, 2028 (the “First Lien Notes due 2028” and, together with the First Lien Notes due 2027, the “First Lien Notes”).

The First Lien Notes due 2027 were issued pursuant to an indenture, dated as of October 8, 2020 (the “2027 First Lien Indenture”), by and among Old Frontier, the guarantors party thereto, the grantor party thereto, JPMorgan Chase Bank N.A., as collateral agent, and Wilmington Trust, National Association, as trustee. The First Lien Notes due 2028 were issued pursuant to an indenture, dated as of November 25, 2020 (the “2028 First Lien Indenture” and, together with the 2027 First Lien Indenture, the “First Lien Indentures”), by and among Old Frontier, the guarantors party thereto, the grantor party thereto, JPMorgan Chase Bank N.A., as collateral agent and Wilmington Trust, National Association, as trustee.

On the Effective Date, in accordance with the Indentures and the Plan, New Frontier Issuer entered into supplemental indentures to the First Lien Indentures with Wilmington Trust, National Association, as trustee, and assumed the obligations under each series of the First Lien Notes and each of the First Lien Indentures.

The First Lien Notes 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 the Term Loan Facility and the Revolving Facility.

The First Lien 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 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 have investment grade ratings by at least two of Moody’s, S&P or Fitch. The First Lien Notes Indentures 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 to become or to be declared due and payable.

(12) Restructuring Costs and Other ChargesCharges:

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

Restructuring costs and other charges primarily consistingconsists of severance and other employee-relatedemployee costs related to workforce reductions. It also includes professional fees related to our Chapter 11 Cases that were incurred after the emergence date as well as professional fees related to our restructuring and transformation that were incurred prior to the Petition Date.

During the four months ended April 30, 2021, we incurred $7 million of $46 million in connection withseverance and employee costs resulting from workforce reductions, are included in “Restructuring costs and other charges” in our consolidated statement of operations forreductions. During the ninefive months ended September 30, 2017. 2021, we incurred $19 million in expenses consisting of $6 million of severance and employee costs resulting from workforce reductions and $13 million of professional fees related to our balance sheet restructuring.

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 monthsnine-month period ended September 30, 2017.2020, we incurred $87 million in restructuring expenses consisting of $8 million directly associated with transformation initiatives, $7 million of severance and employee costs resulting from workforce reductions, and $72 million of consulting and advisory costs related to our balance

35


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

sheet restructuring activities through the Petition Date.

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)

($ in millions)

Balance at January 1, 2021 (Predecessor)

$

Balance, January 1, 2017

Severance expense

$

47 

Severance costs

46 

Cash payments during the period

(2)

(81)

Balance, September 30, 2017

Balance at April 30, 2021 (Predecessor)

$

12 

Balance at April 30, 2021 (Successor)

$

Severance expense

Other costs

13 

Cash payments during the period

(18)

Balance at September 30, 2021 (Successor)

$

(10)

(13) Investment and Other Income:

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

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Interest and dividend income

$

$

-

Pension and OPEB costs

(36)

(16)

All other, net

(2)

Total investment and other loss, net

$

(37)

$

(14)

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Interest and dividend income

$

$

-

$

Pension and OPEB benefit (costs)

(40)

(35)

All other, net

-

(1)

Total investment and other income (loss), net

$

(39)

$

$

(29)

20

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


36


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(10)   (14) 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 

%

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Consolidated tax provision at federal statutory rate

21.0 

%

21.0 

%

State income tax provisions, net of federal income

tax expense (benefit)

-

(792.5)

Changes in certain deferred tax balances

2.0 

1,317.2 

Interest expense deduction

-

(1,592.1)

Restructuring cost

-

694.1 

Tax reserve adjustment

(0.1)

-

Federal research and development tax credit

0.3 

-

All other, net

(3.5)

16.2 

Effective tax rate

19.7 

%

(336.1)

%

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Consolidated tax provision at federal statutory rate

21.0 

%

21.0 

%

21.0 

%

State income tax provisions, net of federal income

tax expense (benefit)

2.8 

0.5 

11.5 

Changes in certain deferred tax balances

-

-

(13.9)

Interest expense deduction

-

-

22.6 

Restructuring cost

-

0.3 

(10.3)

Loss on disposal of Northwest Operations

-

-

(8.1)

Tax reserve adjustment

0.2 

-

(0.7)

Fresh start and reorganization adjustments

-

(24.9)

-

Shared-based payments

-

-

(0.3)

Federal research and development tax credit

(0.5)

-

(0.5)

All other, net

1.2 

-

(0.7)

Effective tax rate

24.7 

%

(3.1)

%

20.6 

%

Income taxesUnder ASC 740 – 270, income tax expense for the ninefour months ended April 30, 2021, is based on the actual year to date effective tax rate for the first four months of the year inclusive of the impact of the fresh start and reorganization adjustments. Income tax expense for the five months ended September 30, 2017 includes2021 is based on an annual effective tax rate for the federalsuccessor period with the exclusion of the discrete items.

Frontier considered positive and negative evidence in regard to evaluating certain deferred tax impact of $107 million related to the goodwill impairment recordedassets during the second quarter of 2017.

Income taxes for2021, including the nine months ended September 30, 2017 includesdevelopment of recent years of pre-tax book losses. On the impactbasis of $2this evaluation, a valuation allowance of $111 million ($88 million net of income tax expense resulting from the adoption of ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.”

Amounts pertaining to income tax related accounts of $48 million and $55 million are included in “Income taxes and other current assets” in the consolidated balance sheetsfederal benefit) was recorded as of September 30, 20172021.

On March 27, 2020, the Coronavirus Aid, Relief, and December 31, 2016, respectively.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

37

During the first nine months of 2017, we received net state income tax refunds of $4 million. In October 2017, we received federal tax refunds of $48 million.

21


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 September 30, 2021, Frontier has deferred the payments of approximately $60 million in such taxes.

(11)  As described more fully in Note 1 and Note 3, the Company emerged from bankruptcy on April 30, 2021, and consummated a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company and utilized substantially all of the Company’s Net LossOperating Losses (“NOLs”).

(15) Net Earnings (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)

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Net income used for basic and diluted earnings

per share:

Total basic net income

attributable to Frontier common shareholders

$

126 

$

15 

Effect of loss related to dilutive stock units

-

-

Total diluted net income

attributable to Frontier common shareholders

$

126 

$

15 

Basic earnings per share:

Total weighted average shares and unvested restricted stock

awards outstanding - basic

244,403 

104,919 

Less: Weighted average unvested restricted stock awards

-

(393)

Total weighted average shares outstanding - basic

244,403 

104,526 

Basic net earnings per share

attributable to Frontier common shareholders

$

0.52 

$

0.14 

Diluted earnings per share:

Total weighted average shares outstanding - basic

244,403 

104,526 

Effect of dilutive stock units

1,264 

340 

Total weighted average shares outstanding - diluted

245,667 

104,866 

Diluted net earnings per share

attributable to Frontier common shareholders

$

0.51 

$

0.14 

38


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

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

per share:

Total basic net income (loss)

attributable to Frontier common shareholders

$

225 

$

4,541 

$

(352)

Effect of loss related to dilutive stock units

-

-

-

Total diluted net income (loss)

attributable to Frontier common shareholders

$

225 

$

4,541 

$

(352)

Basic earnings (loss) per share:

Total weighted average shares and unvested restricted stock

awards outstanding - basic

244,402 

104,799 

104,989 

Less: Weighted average unvested restricted stock awards

-

(215)

(529)

Total weighted average shares outstanding - basic

244,402 

104,584 

104,460 

Basic net earnings (loss) per share

attributable to Frontier common shareholders

$

0.92 

$

43.42 

$

(3.37)

Diluted earnings (loss) per share:

Total weighted average shares outstanding - basic

244,402 

104,584 

104,460 

Effect of dilutive shares

1,198 

340 

-

Total weighted average shares outstanding - diluted

245,600 

104,924 

104,460 

Diluted net earnings (loss) per share

attributable to Frontier common shareholders

$

0.92 

$

43.28 

$

(3.37)

Restricted Stock

In calculating diluted net lossincome per common share for the three and ninefive months ended September 30, 2016,2021, 1,264,000 and 1,198,000 restricted stock shares have been included in the effect of all common stock equivalents is excluded from the computationcalculation as the effect would be antidilutive.dilutive.

Stock OptionsUnits

For the three and nine months endedAs of September 30, 20172021, there were 0 stock units outstanding. As of April 30, 2021, there were 339,544 stock units issued under Old Frontier director and 2016, previously granted options to purchase 2,664 shares, issuable under employee compensation plans that 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.

22


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Stock Units

At September 30, 2017 and 2016, we had 161,020 and 116,223 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 not been included in the diluted EPS calculation for the threefour months ended SeptemberApril 30, 2017 and 2016 and2021 as the nine months ended September 30, 2016 because their inclusioneffect 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.be dilutive.

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) Stock Plans:

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. 

At September 30, 2017, we had seven stock-based compensation plans under which grants were made and awards remained outstanding. No further awards may be granted under six 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, there were approximately 5,667,000 shares authorized for grant and approximately 4,381,000 shares available for grant under the 2017 Equity Incentive Plan (the 2017 EIP and together with the 1996 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 CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(16) Stock Plans:

Upon emergence, all outstanding stock-based compensation plans of Old Frontier were terminated and, in accordance with the Plan, the form of the Frontier Communications Parent, Inc. 2021 Management Incentive Plan (the “Incentive Plan”) was approved and adopted by the Board. The Incentive Plan permits stock-based awards to be made to employees, directors, or consultants of the Company or its affiliates, as determined by the Compensation and Human Capital Committee. At emergence, there were 15,600,000 shares of Common Stock reserved for issuance pursuant to the Incentive Plan.  As of September 30 2021, the Company had awarded an aggregate of approximately 5,278,041 unvested restricted stock units and performance stock units (which reflects the “target” number of performance stock units subject to performance conditions granted to certain officers), under the Incentive Plan to certain employees, directors and officers of the Company, subject to satisfaction of the applicable vesting conditions.

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 20132017 EIP and the 2017 EIP2021 Incentive Plan:

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 (Predecessor)

304 

$

6.78

$

-

Restricted stock granted

-

$

-

$

-

Restricted stock vested

(41)

$

8.23

$

-

Restricted stock forfeited

(109)

$

8.23

 

Balance at April 30, 2021 (Predecessor)

154 

$

5.38

$

-

Cancellation of restricted stock

(154)

$

-

$

-

Balance at April 30, 2021 (Predecessor)

-

$

-

$

-

2021 Incentive Plan

Weighted

Average

Number of

Grant Date

Aggregate

Shares

Fair Value

Fair Value

(in thousands)

(per share)

(in millions)

Balance at April 30, 2021 (Successor)

-

$

-

$

-

Restricted stock granted

2,365 

$

28.75

$

66 

Restricted stock vested

(9)

$

28.75

$

-

Restricted stock forfeited

(42)

$

28.75

 

Balance at September 30, 2021 (Successor)

2,314 

$

28.75

$

65 



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

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, 20172021 was $26$63 million, and the weighted average vesting period over which this cost is expected to be recognized is approximately 1.52 years.

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.


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

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$4 million for each of the ninethree and five month periodsperiod ended September 30, 2017 and 2016,2021, has been recorded in connection with these grantsgrants. During the four months ended April 30, 2021, Old Frontier recognized stock-based compensation credit of $1 million related to Old Frontier Director and Employee Compensation Plans.

Performance Stock Units

On July 7, 2021, Frontier’s Compensation and Human Capital Committee, in consultation with the other directors of Frontier’s Board of Directors and the Committee’s independent executive compensation consultant, reviewed and approved a long-term equity award program or “Emergence LTI Program” under the 2021 Management Incentive Plan (“MIP”).

The Emergence LTI Program consists of both Restricted Stock Units (RSUs) and Performance Stock Units (PSUs). RSUs are time-based awards that vest over time and the value reflects the stock price of the Company.  PSUs are tied to the financial performance and long-term target of the Company and consist of a three-year performance period (a Measurement Period).  A target number of performance units are awarded to each participant with respect to the Measurement Period. The performance metrics under the 2021 PSU grants consist of targets for (1) Adjusted Fiber EBITDA, (2) Fiber Locations Constructed and (3) Expansion Fiber Penetration. In addition, there is an overall performance modifier, based on Frontier’s total return to stockholders over the Measurement Period (i.e., Total Shareholder Return or TSR) relative to the S&P 400 Mid Cap index.  The TSR performance modifier can decrease or increase payouts based on Frontier’s three-year performance. PSU awards, to the extent earned, will be paid out in the form of common stock shortly following the end of the Measurement Period.

The number of shares of common stock or units earned at the end of the Measurement Period may be more or less than the number of target performance shares or units granted as a result of performance. An executive must maintain a satisfactory performance rating during the Measurement Period and must be employed by Frontier upon determination in order for the award to vest. The Compensation and Human Capital Committee will determine the number of shares earned for the Measurement Period in the first quarter of the year following the end of the Measurement Period.

41

24


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED

The following summary presents information regarding performance shares as of September 30, 2021 and changes during the nine months then ended with regard to performance shares awarded under the 2021 Incentive Plan:

2021 Incentive Plan

 Number of

Shares

(in thousands)

Balance at April 30, 2021 (Successor)

-

Target performance shares granted, net

2,975

Target performance shares earned

-

Target performance shares forfeited

(11)

Balance at September 30, 2021 (Successor)

2,964

For purposes of determining compensation expense, the fair value of each performance share grant is estimated based on the closing price of a share of our common stock on the date of the grant. For the three and five months ended September 30, 2021, we recognized net compensation expense, reflected in “Selling, general and administrative expenses,” of $4 million related PSU awards. The value of the PSU awards were adjusted to reflect the fair value of the relative TSRmodifier.

42


PART I. FINANCIAL STATEMENTS INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(13) (17) 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.

In May and August of 2021, Frontier amended the medical coverage for certain postretirement benefit plans, which resulted in remeasurements of its other postretirement benefit obligation and prior service credits of $55 million and $2 million, respectively, which were deferred in “Accumulated comprehensive income” on our consolidated balance sheet as of September 30, 2021. Refer to Note 18 for further details.

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 (Predecessor) (1)

$

(699)

$

(56)

$

(755)

Other comprehensive income (loss)

before reclassifications

270 

74 

344 

Amounts reclassified from accumulated other

comprehensive loss to net loss

19 

(4)

15 

Net current-period other comprehensive

income (loss)

289 

70 

359 

Cancellation of Predecessor equity

410 

(14)

396 

Balance at April 30, 2021 (Predecessor) (1)

$

-

$

-

$

-

Balance at April 30, 2021 (Successor) (1)

$

-

$

-

$

-

Other comprehensive income (loss)

before reclassifications

-

46 

46 

Amounts reclassified from accumulated other

comprehensive loss to net loss

-

(2)

(2)

Net current-period other comprehensive

income

-

44 

44 

Balance at September 30, 2021 (Successor) (1)

$

-

$

44 

$

44 

Pension

OPEB

($ in millions)

Costs

Costs

Total

Balance at January 1, 2020 (Predecessor) (1)

$

(684)

$

34 

$

(650)

Other comprehensive income (loss)

before reclassifications

(389)

(16)

(405)

Amounts reclassified from accumulated other

comprehensive loss to net loss

233 

(10)

223 

Net current-period other comprehensive

loss

(156)

(26)

(182)

Balance at September 30, 2020 (Predecessor) (1)

$

(840)

$

$

(832)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

($ 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)

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 January 1, 2021 and 2020, respectively and $12 million and $255 million as of September 30, 2017. This remeasurement resulted in a decrease in the discount rate from 4.10% at 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.

43

25


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Amount Reclassified from

 

 

($ in millions)

 

Accumulated Other Comprehensive Loss (a)

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Amortization of Pension Cost Items (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial gains (losses)

 

$

(6)

 

$

(9)

 

$

(23)

 

$

(30)

 

 

Pension settlement costs

 

 

(15)

 

 

 -

 

 

(77)

 

 

 -

 

 



 

 

(21)

 

 

(9)

 

 

(100)

 

 

(30)

 

Income (loss) before income taxes

Tax impact

 

 

 

 

 

 

37 

 

 

11 

 

Income tax (expense) benefit



 

$

(13)

 

$

(6)

 

$

(63)

 

$

(19)

 

Net income (loss)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of OPEB Cost Items (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior-service costs

 

$

 

$

 

$

 

$

 

 

Actuarial gains (losses)

 

 

 

 

 -

 

 

 -

 

 

(1)

 

 



 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

Tax impact

 

 

(2)

 

 

 -

 

 

(3)

 

 

(2)

 

Income tax (expense) benefit



 

$

 

$

 

$

 

$

 

Net income (loss)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount Reclassified from

Accumulated Other

Comprehensive Loss (1)

Successor

Predecessor

For the three months

For the three months

Affected Line Item in the

ended September 30,

ended September 30,

Statement Where Net

($ in millions)

2021

2020

Income (Loss) is presented

Amortization of Pension

Cost Items:

Actuarial losses

$

-

$

(29)

-

(29)

Loss before income taxes

Tax impact

-

Income tax benefit

$

-

$

(25)

Net income (loss)

Amortization of OPEB

Cost Items:

Prior-service costs

$

$

Actuarial losses

-

(1)

Income before income taxes

Tax impact

(1)

(2)

Income tax benefit

$

$

Net income (loss)

Amount Reclassified from

Accumulated Other

Comprehensive Loss (1)

Successor

Predecessor

For the five months

For the four months

For the nine months

Affected Line Item in the

ended September 30,

ended April 30,

ended September 30,

Statement Where Net

($ in millions)

2021

2021

2020

Income (Loss) is presented

Amortization of Pension

Cost Items

Actuarial losses

$

-

$

(24)

$

(76)

One-time loss on disposal

-

-

(61)

Pension settlement costs

-

-

(159)

-

(24)

(296)

Income (Loss) before income taxes

Tax impact

-

63 

Income tax benefit

$

-

$

(19)

$

(233)

Net income (loss)

Amortization of OPEB

Cost Items

Prior-service costs

$

$

10 

$

24 

Actuarial losses

-

(5)

(4)

One-time loss on disposal

-

-

(7)

13 

Income (Loss) before income taxes

Tax impact

(1)

(1)

(3)

Income tax benefit

$

$

$

10 

Net income (loss)

(a) Amounts in parentheses indicate losses.

(b)(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension and OPEB costs (see(See Note 1418 - Retirement Plans for additional details).

44

26


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(14)   

(18) Retirement Plans:

Frontier recognizes actuarial gains (losses) for our pension and postretirement plans in the period they occur. The components of net periodic benefit cost other than the service cost component for our plans as well as any actuarial gains or losses are included in “Investment and other income (loss)” on the consolidated statement of operations.

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

Successor

Predecessor

Pension

Pension

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Components of total pension benefit cost

Service cost

$

20 

$

24 

Interest cost on projected benefit obligation

26 

26 

Expected return on plan assets

(49)

(40)

Recognition of actuarial loss

-

29 

Net periodic pension benefit cost

$

(3)

$

39 

Successor

Predecessor

Pension

Pension

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Components of total pension benefit cost

Service cost

$

33 

$

32 

$

73 

Interest cost on projected benefit obligation

44 

31 

84 

Expected return on plan assets

(80)

(61)

(129)

Recognition of actuarial loss

-

24 

76 

Net periodic pension benefit cost

(3)

26 

104 

Pension settlement costs

-

-

159 

Gain on disposal, net

-

-

(50)

Total pension benefit cost

$

(3)

$

26 

$

213 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



   

Pension Benefits



 

For the three months ended

 

For the nine months ended



 

September 30,

 

September 30,



 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

Components of total pension benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

26 

 

$

16 

 

$

76 

 

$

63 

Interest cost on projected benefit obligation

 

 

27 

 

 

24 

 

 

94 

 

 

89 

Expected return on plan assets

 

 

(43)

 

 

(30)

 

 

(139)

 

 

(122)

Amortization of unrecognized loss

 

 

 

 

 

 

23 

 

 

30 

Net periodic pension benefit cost

 

$

16 

 

$

19 

 

$

54 

 

$

60 

Pension settlement costs

 

 

15 

 

 

 -

 

 

77 

 

 

 -

Total pension benefit cost

 

$

31 

 

$

19 

 

$

131 

 

$

60 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

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 

During

45


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The components of net periodic benefit cost other than the first nine monthsservice cost component are included in “Investment and other income” on the consolidated statement of 2017operations.

As part of fresh start accounting, Frontier revalued its net pension obligation as of April 30, 2021. In revaluating the pension benefit obligation, the assumed discount rate was 3.10% and 2016, we capitalized $20the assumed rate of return on Plan assets was 7.5%. The discount rate increased compared to the 2.60% used in the December 31, 2020 valuation. This change as well as other changes in assumptions lead to a pension obligation decrease of $328 million.

The value of our pension plan assets increased $79 million from $2,507 million at December 31, 2020 to $2,586 million at April 30, 2021. This increase primarily resulted from contributions of $32 million and $18investment returns of $78 million, respectively,partially offset by benefit payments to participants of pension$25 million and OPEB expense into the costplan expenses of $6 million.

The value of our capital expenditures, as the costs relatepension plan assets increased $12 million from $2,586 million at April 30, 2021 to our engineering$2,598 million at September 30, 2021. This increase primarily resulted from investment returns of $68 million, partially offset by benefit payments to participants of $51 million and plant construction activities.plan expenses of $5 million.

The Pension Planpension 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, 2017,2020, lump sum pension settlement payments to terminated or retired individuals amounted to $87 million and $449$465 million, which exceeded the settlement threshold of $224$211 million, and as a result, Frontier recognized non-cash settlement charges totaling $77$159 million during the first nine months of 2017.ended September 30, 2020.

In 2020, we made $64 million in contributions to the pension plan. These represent the contributions for the 2019 plan year and reflect the fact that we received a pension funding waiver for all 2020 plan year contributions. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial lossespension funding waiver was in the Pension Plan. These non-cash charges increased our recorded net loss and accumulated deficit, with an offset to accumulated other comprehensive loss in shareholders’ equity. An additional pension settlement charge will be required in the fourth quarter of 2017, the amount of which$127 million and will be dependent onamortized over the lump sum benefit payments made duringnext five years.

In 2021, we elected the fourth quarter.provisions of American Rescue Plan Act, or ARPA retroactive to the 2019 plan year, which resulted in 1) a shortfall amortization period change from 7 to 15 years with a fresh start for the existing shortfall, commencing in the 2019 plan year and 2) interest rate stabilization, commencing in the 2020 plan year. These elections resulted in the creation of a funding balance that we used to satisfy certain required contributions in 2021. As a result of the recognition of the settlement chargesthese changes, our pension plan contributions in the first nine monthsfiscal year 2021 are $42 million.

46


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The following tables provide the components of 2017,total postretirement benefit cost:

Successor

Predecessor

Postretirement

Postretirement

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Components of net periodic postretirement benefit cost

Service cost

$

$

Interest cost on projected benefit obligation

Amortization of prior service credit

(2)

(8)

Recognition of actuarial loss

54 

Net periodic postretirement benefit cost

$

63 

$

Successor

Predecessor

Postretirement

Postretirement

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Components of net periodic postretirement benefit cost

Service cost

$

$

$

15 

Interest cost on projected benefit obligation

12 

24 

Amortization of prior service credit

(3)

(10)

(24)

Recognition of actuarial loss

67 

Net periodic postretirement benefit cost

83 

11 

19 

One-time gain on sale

-

-

(24)

Net periodic postretirement benefit cost

$

83 

$

11 

$

(5)

As part of fresh start accounting, the net pension plan liabilityCompany remeasured its other postretirement benefit obligation as of April 30, 2021. The assumed discount rate for this remeasurement increased from 2.60% to 3.30%, resulting in a reduction of our postretirement benefit obligation of approximately $101 million. As such, the postretirement benefit obligation was remeasuredreduced from $1,042 million as of December 31, 2020, to $941 million as of April 30, 2021.

In May and August of 2021, Frontier amended the medical coverage for certain postretirement benefit plans, which resulted in remeasurements of its other postretirement benefit obligation and prior service credits of $55 million and $2 million, respectively, which were deferred in Accumulated comprehensive income 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.2021.

47

27


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Our Pension Plan assets decreasedThe remeasurements resulted in decreases to the discount rate used to calculate the benefit obligation. The May remeasurement adjusted the discount rate from $2,766 million at December 31, 20163.30% to $2,604  million at September 30, 2017,3.20%, resulting in a decreaseremeasurement loss of $162 million, or  6%. This decrease wasapproximately $13 million. The August remeasurement adjusted the discount rate from 3.20% to 2.80%, resulting in a remeasurement loss of approximately $54 million. As a result of benefit paymentsfresh start accounting, Frontier updated its policy to recognize actuarial gains and losses in the period in which they occur. As such, these losses on remeasurement was recorded in Investment and other income, net on our consolidated statement of $492operations for the three and five months ended September 30, 2021.

During the four months of April 30, 2021, we capitalized $7 million partially offset by positive investment returns of $270pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities. During the three and five months ended September 30, 2021, we capitalized $6 million netand $10 million of investment managementpension and administrative fees,OPEB expense, respectively. During the three and contributions in excess of the Differential (as defined below) of $60  million, during the first nine months ended September 30, 2020, we capitalized $5 million and $18 million, respectively, of 2017.  

As part of the CTF Acquisition, Verizon was required to make a cash payment to Frontier for the difference in assets initially transferred by Verizonpension and OPEB expense into the Pension Plancost of our capital expenditures, as the costs relate to our engineering 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.plant construction activities.

(15) 

(19) 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 connection with the accelerated fiber build, we have prioritized diversifying our vendor base and finalizing agreements with vendors for relevant labor and materials. Some of these agreements will have initial two-year terms with an option to extend for two years through 2025.

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 the CAF II eligible areas. The Company must complete the CAF II deployment by December 31, 2021. Thereafter, the FCC will review carriers’ CAF II program completion data. 

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 over ten years to build gigabit capable broadband over a fiber-to-the-premises network to approximately 127,000 locations in annual support related8 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. Beginning in 2022, Frontier will be required to issue letters of credit to the FCC as a portioncondition for amounts awarded. After the FCC updates its maps with more granular broadband availability information, the FCC plans to hold a second auction (RDOF Phase II) for any remaining locations with the remaining funding, up to approximately $11.2 billion.

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 and in connection with certain disclosures relating to the CTF transaction. 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.  On March 8, 2019, the District Court granted in its entirety Frontier’s motion to dismiss the complaint and on March 24, 2020, the court denied plaintiffs’ motion for leave to amend. Plaintiffs appealed and prior to oral argument, the parties reached an agreement in principle to resolve the matter. The settlement, which will require court

48


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

approval and will be covered by insurance, will have no material financial impact on the Company.  In addition, shareholders filed derivative complaints on behalf of the funds previously received.Company in Connecticut, California, and Delaware courts. The derivative complaints are based, generally, on the same facts asserted in the consolidated class action complaint.  Frontier believes the derivative complaints are meritless and does not expect those cases will have a material financial impact on the Company.

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 result in deregulation in a substantial number of our markets. Once implemented, 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 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. 

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 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 agreed to indemnify the purchaser for certain customary post-closing matters, including, among other things, breaches of certain covenants, agreements and warranties included in the CTF Acquisition,purchase agreement for a period of potential violationsone year after the closing date. As of California state hazardous waste statutes primarily arisingSeptember 30, 2021, all proceeds previously held in escrow related to such indemnification obligations, employee liabilities, and adjustments to working capital have been received by the Company.

We conduct certain of our operations in leased premises and also 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 specific intervals. When rent escalation clauses exist, we record annual rental expense based on the disposal of electronic components, batteries and aerosol cans at certain California facilities. 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 accrued an amountseveral unrelated long-distance carriers. The contracts provide fees based on traffic they carry for potential penalties us subject to minimum monthly fees.


2849


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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. 

29


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

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 expectedexpectations or beliefs concerning future businessevents, including, without limitation, our future operating and financial performance, our ability to comply with the covenants in the agreements governing our indebtedness and financial condition,other matters. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance 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 uncertaintiesWe do not intend, nor do we undertake any duty, to update any forward-looking statements.

A wide range of factors could materially affect future developments and performance, including but not limited to:

our significant indebtedness, our ability to incur substantially more debt in the future, and covenants in the agreements governing our current indebtedness that could causemay reduce our actual resultsoperating and financial flexibility;

declines in Adjusted EBITDA relative to be materially different than those expressedhistorical levels that we are unable to offset through potential EBITDA enhancements;

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

our ability to secure necessary construction resources, materials and permits for our fiber buildout initiative;

our ability to effectively manage our operations, operating expenses, capital expenditures, debt service

requirement and cash paid for income taxes and liquidity;

competition from cable, wireless and wireline carriers, satellite, fiber “overbuilders” 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 forward-looking statements include:networks, infrastructure and information technology that result in customer loss and/or incurrence of additional expenses;

·

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;

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, including wholesale customers;

our reliance on a limited number of key supplies and vendors;

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

our ability to hire or retain key personnel;

3050


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

·

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.

Anyour ability to dispose of certain assets or asset groups or to make acquisition of certain assets 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;

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

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 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;

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;

our ability to successfully renegotiate union contracts;

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

changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of our pension plan assets;

the likelihood that our historical financial information may no longer be indicative of our future performance; and our implementation of fresh start accounting;

the impact of adverse changes in economic, political and market conditions in the areas that we serve, the U.S. and globally, including but not limited to, disruption in our supply chain, inflation in pricing for key materials or labor, or other adverse changes resulting from epidemics, pandemics and outbreaks of contagious diseases, including the COVID-19 pandemic, natural disasters, economic or political instability or other adverse public health developments;

·potential adverse impacts of the foregoing events,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, working remotely and recent federal vaccine mandates, our ability to effectively manage increased demand on our network, our ability to maintain relationships with our current or prospective customers and vendors and the ability of our vendors to perform under current or proposed arrangements with us, including impacts of potential stress on our supply chain;

51


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

risks associated with our emergence from the Chapter 11 Cases, including, but not limited to: the continuing effects of the Chapter 11 Cases on us and our relationships with our suppliers, customers, service providers or employees and changes in the composition of our board of directors and senior management;

volatility in the trading price of our common stock, which has a limited trading history;

substantial market overhang from the common stock issued in the Reorganization;

certain provisions of Delaware law and our certificate of incorporation that may prevent efforts by our stockholders to change the direction or management of our company; and

certain other events, could causefactors set forth in our results to vary from management’sother filings with the SEC.

This list of factors that may affect future performance and the accuracy of forward-looking statements included in this report.is illustrative and is not intended to be exhaustive. You should consider these important factors, as well as the risks described in this report on Form 10-Q and other filings with the SEC, including the risk factors included in Item 1A of our quarterly report on Form 10-Q for the quarter ended June 30, 2021, 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.


52

31


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

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

Description of our Business

Frontier Communications offers a variety of services to residential and business customers over its fiber-optic and copper networks in 25 states, including high-speed Internet, video, advanced voice, and Frontier Secure® digital protection solutions. Frontier Business™ offers communications solutions to small, medium, and enterprise businesses.  

Overview

On April 1, 2016,30, 2021, we completedemerged from bankruptcy with a restructured balance sheet, a new management team, and a new purpose to Build Gigabit America by upgrading our copper network to fiber to meet the rapidly increasing demand for data from both our consumer and business customers. We believe that fiber-optic service has competitive advantages to be able to meet this growing demand, including faster download speeds, faster upload speeds, and lower latency levels than alternative broadband services.

On August 5, 2021, we announced our plan to accelerate our fiber build to reach 4 million fiber passings by December 31, 2021, and 10 million total fiber passings by December 31, 2025. We are prioritizing these build outs to target projects which we estimate will provide the highest investment returns. Over time, we expect our business mix will shift significantly, with a larger percentage of revenue coming from fiber as we implement our expansion plan.

Our strategy focuses on four levers of value creation: fiber deployment, fiber broadband penetration, operational efficiency, and improving the customer experience.

We built fiber to approximately 185,000 locations during the third quarter of 2021, resulting in 3.8 million total locations passed with fiber as of September 30, 2021. Our build plan remains on track and we have solidified our fiber build supply chain with multi-year agreements with key labor and equipment partners.

We had a record quarter of 29,000 fiber broadband customer net additions.

We realized approximately $45 million of gross annualized cost savings and remain on track to deliver $250 million of gross annual cost savings by 2023

We made significant strides in order to improve our customer experience, through partnerships with Red Ventures for digital customer acquisition and recently announced that we’re teaming up with eero, an Amazon company, to offer the eero Pro 6 to new fiber-optic customers, delivering a fast, reliable whole-home Wi-Fi experience.  

On October 13, 2021, our consolidated subsidiary Frontier Communications Holdings, LLC (“FCH LLC” or the “Issuer”), issued $1.0 billion aggregate principal amount of Verizon’s wireline properties6.0% second lien secured notes due 2030 in California, Texas, and Florida (the CTF Acquisition,an offering pursuant to exemptions from the registration requirements of the CTF Operations).Frontier’s scopeSecurities Act of operations and balance sheet changed materially as a result1933 (the “Securities Act”). The Company intends to use the net proceeds of the completion of the CTF Acquisition. Historical financialthis offering to fund capital investments and operating data presented for Frontier includes the results of the CTF Operations that were acquired in the CTF Acquisitioncosts arising from the dateCompany’s fiber build and expansion of acquisition on April 1, 2016its fiber customer base, and is not indicative of future operating results. The financial discussion below includes a comparative analysis offor general corporate purposes. Giving effect to this offering, our results of operations on a historical basisliquidity as of and for the nine months ended September 30, 2017 and 2016.

On July 10, 2017, we effected a one for fifteen reverse stock split 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 in the par value of the common stock, and no fractional shares were issued. All share and per share amounts in the financial discussion below2021 would have been retroactively adjusted for all periods presented to give effect 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.$2.7 billion.

53

Our financial results for the first nine months of 2017 include the CTF Operations for the first quarter of 2017. With the acquisition occurring April 1, 2016, there are no comparative results for the corresponding period in 2016. The table below reflects the results of operations for the CTF Operations for the first quarter of 2017. In the narrative that follows for the nine month period, unless otherwise noted we will only discuss the remaining variance. 

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 CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

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.

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).


54

33


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

(a)

Results of Operations

CUSTOMER RELATED METRICS(a)Results of Operations



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

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 

%

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

Customer TrendsUnless otherwise indicated, the discussion of the customer metrics and Revenue Performance

We provide service and product options in our consumer and commercial offerings in eachcomponents of our markets. As of September 30, 2017, 68% of our consumer broadband customers were subscribedoperating income for the table that follows relates only 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%the Non-GAAP combined financial results for the three and nine 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 20172021 as compared to the prior year period. The overall decrease in consumer ARPC is a resultfinancial results excluding the impact 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%the Northwest operations for the nine months ended September 30, 2017 (1.94% for Frontier legacy2020.

Customer counts, ARPC, and 2.68% for CTF Operations) comparedConsumer Customer Churn

As of or for the three months ended September 30,

(Customer, Subscriber, and Employee Metrics in thousands)

2021(2)

2020 (3)

% Change

Customers (4)

Consumer

3,173 

3,306 

(4)

%

Business (1)

304 

332 

(8)

%

Total

3,477 

3,638 

(4)

%

Consumer Customer Metrics (4)

Net customer additions (losses)

(23)

(36)

(36)

%

ARPC

$

83.77 

$

86.75 

(3)

%

Customer Churn

1.64%

1.81%

(9)

%

Broadband Customer Metrics (1) (4)

Fiber Broadband

Consumer customers

1,292 

1,229 

%

Business customers

95 

94 

%

Consumer net customer additions

29 

383 

%

Consumer customer churn

1.56%

1.80%

(13)

%

Consumer customer ARPU

$

63.35 

$

57.58 

10 

%

Copper Broadband

Consumer customers

1,264 

1,381 

(8)

%

Business customers

138 

157 

(12)

%

Consumer net customer additions

(33)

(20)

65 

%

Consumer customer churn

1.89%

2.11%

(10)

%

Consumer customer ARPU

$

45.44 

$

42.16 

%

Other Metrics

Employees

15,803 

16,302 

(3)

%

55


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

For the nine months ended September 30,

(Customer, Subscriber, and Employee Metrics in thousands)

2021(2)

2020 (3)

% Change

Consumer Customer Metrics (4)

Net customer additions (losses)

(92)

(107)

(14)

%

ARPC

$

85.49 

$

87.50 

(2)

%

Customer Churn

1.54%

1.76%

(13)

%

Broadband Customer Metrics (1) (4)

Fiber Broadband

Consumer net customer additions

54 

24 

125 

%

Consumer customer churn

1.50%

1.75%

(14)

%

Consumer customer ARPU

$

62.38 

$

57.14 

%

Copper Broadband

Consumer net customer additions

(85)

(61)

39 

%

Consumer customer churn

1.73%

2.17%

(20)

%

Consumer customer ARPU

$

44.47 

$

41.74 

%

(1)

Amounts presented exclude related metrics for our wholesale customers

(2)

Amounts represent activity related to both the Predecessor and Successor company on a combined basis.

(3)

Amounts have been adjusted to exclude the impact of our Northwest Operations.

(4)

Due to changes in methodology during the second quarter of 2021, historical periods have been updated to reflect the comparable amounts.

Fiber Customers

The Company has initiated an investment strategy focused on expanding and improving its fiber network. In conjunction with this strategy, the Company is also working to 1.94% (1.81% for Frontier legacyimprove its product positioning in both existing and 2.27% for CTF Operations) fornew fiber markets.

Although still in the initial stages of this fiber investment strategy, results are promising as the quarter ended September 30, 2021 represents the ninth consecutive quarter of positive net adds. Further, this strategy is accelerating our fiber growth as the quarterly positive net adds are improving both year over year and sequentially.

For the three and nine months ended September 30, 2016.2021, Frontier added 29,000 and 54,000 consumer fiber broadband customers compared to 6,000 and 24,000 for the three and nine months ended September 30, 2020. The consolidatedpositive growth in the quarter ended September 30, 2021 represents the ninth consecutive quarter of positive net adds.

Our focus on expanding and improving our state-of-the-art fiber network is resulting in improved customer retention. Our average monthly consumer fiber broadband churn was 1.56% and 1.50% for the three and nine months ended September 30, 2021 compared to 1.80% and 1.75% for three and nine months ended September 30, 2020. The improvements in customer churn were also aided by increased focus on customer retention at key customer touchpoints such as installation, first bill and end of promotion periods.

In addition to our sequential improvement in net add, we continue to see improvements in the average monthly consumer fiber broadband revenue per customer which increased $5.77 or 10% to $63.35 and increased $5.24 or 9% to $62.38 for the three and nine months ended September 30, 2021 compared to the prior year period, respectively. These increases are due to increased data equipment revenue and shifting mix towards higher speeds.

56


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Copper Customers

For the three and nine months ended September 30, 2021, Frontier lost 33,000 and 85,000 of our consumer copper broadband customers compared to 20,000 and 61,000 for the three and nine months ended September 30, 2020. Our fiber investment strategy has impacted these results as new fiber markets will not only cease selling the copper broadband product, but we will focus on converting existing copper broadband customers to a fiber product.

For the three and nine months ended September 30, 2021, Frontier lost 4,000 and 14,000 of our business copper broadband customers compared to 7,000 and 20,000 for the three and nine months ended September 30, 2020.

Our average monthly consumer customer churn was 1.64% and 1.54% for the three and nine months ended September 30, 2021 compared to 1.81% and 1.76% for three and nine months ended September 30, 2020. The reductions in customer churn were primarily driven by customer retention initiatives and also reflect the impact of COVID-19.

Consumer and Business Customers

During the three and nine months ended September 30, 2021 we experienced a reduction in total customers of approximately 1% and 5%, respectively.

The average monthly consumer revenue per customer (consumer ARPC) increased by $4.62 or 6%decreased $2.98 to $80.73 during$83.77 and decreased $2.01 to $85.49 for the firstthree and nine months of 2017ended September 30, 2021 compared to the prior year period. The overall increase inperiods, respectively. After adjusting for the fresh start impact of approximately $1.81 and $1.23 for the three and nine month periods, respectively, consumer ARPC is a result of higher revenue due to having nine months of CTF Operations in 2017decreased by $1.17 and only six months in 2016, partially offset by lower voice services revenue.$0.78, respectively.

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 duringThe decrease for the three and nine months ended September 30, 2017 compared to2021 was primarily a lossresult 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 indecreased video services along with decreased consumer voice services, revenueslightly offset by increased fiber data and wireless backhaul revenues from commercial customersdata equipment revenues. This ARPC trend is expected to continue foras our customer mix becomes more predominantly broadband. We have de-emphasized the remaindersale of 2017. Our Ethernet product revenues from our SME (small business, medium businesslow margin video products which have been a material part of the overall ARPC.

Financial Results

We reported operating income of $284 million 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$270 million for the three months ended September 30, 20162021 and $402020, respectively. Fresh start accounting decreased operating income by $23 million for the third quarter of 2021. After adjusting for the impact of fresh start accounting, our operating income for the three months ended September 30, 2021 would have increased by $37 million. The improvement in our operating results was primarily due to a reduction in depreciation and amortization expense as a result of the lower asset bases established upon our implementation of fresh start accounting and lower video content costs as compared to the corresponding period in 2020.

We reported operating income of $490 million and $62$351 million for the five months ended September 30, 2021 and the four months ended April 30, 2021, respectively. While the basis of accounting for the predecessor and successor are different as a result of applying fresh start accounting, for purposes of discussing our year to date operating performance that follows we have presented combined Non-GAAP operating income for the nine months ended September 30, 2021 which will be compared to operating income for the nine months ended September 30, 2020 for the Remaining Properties. The more significant impacts of fresh start accounting that affect comparability are included in the variance analysis that follows.

We reported Non-GAAP operating income of $841 million and operating income of $682 million for the nine months ended September 30, 20172021 and 2016, respectively. 2020, respectively, an increase of $159 million. Fresh start accounting decreased operating income by $38 million for the first three quarters of 2021. After adjusting for the impact of fresh start accounting, our non-GAAP operating income would have increased by $197 million. The improvement in our operating results was primarily due to reductions in depreciation and amortization expense, loss on disposal, and

57

36


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

decreased video content costs primarily related to the declines in video customers due to the Company de-emphasizing our less profitable video offerings.

Revenue

58


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Successor

Predecessor

For the three

For the three months ended September 30, 2020

months ended

Consolidated

Northwest

Remaining

($ in millions)

September 30, 2021

Frontier

Ops (1)

Properties

Data and Internet services

$

834 

$

838 

$

-

$

838 

Voice services

411 

500 

-

500 

Video services

149 

186 

-

186 

Other

99 

103 

-

103 

Revenue from contracts

with customers

1,493 

1,627 

-

1,627 

Subsidy and other revenue

83 

99 

-

99 

Revenue

1,576 

1,726 

-

1,726 

Operating expenses (2):

Network access

expenses

177 

226 

-

226 

Network related

expenses

413 

431 

-

431 

Selling, general and

administrative

expenses

421 

404 

-

404 

Depreciation and

amortization

273 

392 

-

392 

Restructuring costs and

other charges

-

Total operating expenses

$

1,292 

$

1,456 

$

-

$

1,456 

Operating income

284 

270 

-

270 

Consumer (3)

800 

865 

-

865 

Business and wholesale (3)

693 

762 

-

762 

Revenue from contracts

with customers

1,493 

1,627 

-

1,627 

Subsidy and other revenue

83 

99 

-

99 

Total revenue

$

1,576 

$

1,726 

$

-

$

1,726 

(1)Amounts represent the financial results of the Northwest Operations for the three months ended September 30, 2020.

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

(3)Due to changes in methodology during the second quarter of 2021, historical periods have been updated to reflect the comparable amounts.

59


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Non-GAAP

Successor

Predecessor

Combined

Predecessor

For the five

For the four

For the nine

For the nine months ended September 30, 2020

months ended

months ended

months ended

Consolidated

Northwest

Remaining

($ in millions)

September 30, 2021

April 30, 2021

September 30, 2021

Frontier

Ops (1)

Properties

Data and Internet services

$

1,390 

$

1,125 

$

2,515 

$

2,644 

$

102 

$

2,542 

Voice services

694 

647 

1,341 

1,595 

57 

1,538 

Video services

254 

223 

477 

608 

13 

595 

Other

161 

125 

286 

328 

12 

316 

Revenue from contracts

with customers

2,499 

2,120 

4,619 

5,175 

184 

4,991 

Subsidy and other revenue

138 

111 

249 

285 

277 

Revenue

2,637 

2,231 

4,868 

5,460 

192 

5,268 

Operating expenses (2):

Network access

expenses

304 

264 

568 

767 

14 

753 

Network related

expenses

682 

566 

1,248 

1,305 

26 

1,279 

Selling, general and

administrative

expenses

690 

537 

1,227 

1,255 

26 

1,229 

Depreciation and

amortization

452 

506 

958 

1,204 

-

1,204 

Loss on disposal of

Northwest Operations

-

-

-

160 

-

160 

Restructuring costs

and other charges

19 

26 

87 

-

87 

Total operating expenses

$

2,147 

$

1,880 

$

4,027 

$

4,778 

$

66 

$

4,712 

Operating income

490 

351 

841 

682 

126 

556 

Consumer (3)

1,343 

1,133 

2,476 

2,746 

102 

2,644 

Business and

wholesale (3)

1,156 

987 

2,143 

2,429 

82 

2,347 

Revenue from contracts

with customers

2,499 

2,120 

4,619 

5,175 

184 

4,991 

Subsidy and other

revenue

138 

111 

249 

285 

277 

Total revenue

$

2,637 

$

2,231 

$

4,868 

$

5,460 

$

192 

$

5,268 

(1)Amounts represent the financial results of the Northwest Operations for the nine months ended September 30, 2020.

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

(3)Due to changes in methodology during the second quarter of 2021, historical periods have been updated to reflect the comparable amounts.

60


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

REVENUE

Revenue for our consumer and business and wholesale customers was as follows:

Successor

Predecessor

For the three

For the three

months ended

months ended

$ Increase

% Increase

($ in millions)

September 30, 2021

September 30, 2020

(Decrease)

(Decrease)

Consumer (2)

$

800 

$

865 

$

(65)

(8)

%

Business and wholesale (2)

693 

762 

(69)

(9)

%

Revenue from contracts with customers (1)

1,493 

1,627 

(134)

(8)

%

Subsidy and other revenue

83 

99 

(16)

(16)

%

Total revenue

$

1,576 

$

1,726 

$

(150)

(9)

%

Non-GAAP

Combined

Predecessor

For the nine

For the nine

months ended

months ended

$ Increase

% Increase

($ in millions)

September 30, 2021

September 30, 2020

(Decrease)

(Decrease)

Consumer (2)

$

2,476 

$

2,644 

$

(168)

(6)

%

Business and wholesale (2)

2,143 

2,347 

(204)

(9)

%

Revenue from contracts with customers (1)

4,619 

4,991 

(372)

(7)

%

Subsidy and other revenue

249 

277 

(28)

(10)

%

Total revenue

$

4,868 

$

5,268 

$

(400)

(8)

%

(1)Lease revenue for the successor company for the three and nine months ended September 30, 2021 was $16 million and $47 million, respectively. Lease revenue for the predecessor company for the three and nine months ended September 30, 2020 was $16 million and $50 million, respectively.

(2)Due to changes in methodology during the third quarter of 2021, historical periods have been updated to reflect the comparable amounts.

We conduct business with a range of consumer, business and wholesale customers and we generate both recurring and non-recurring revenues. Recurring revenues are primarily through either a monthlybilled at fixed recurring fee or a feerates, with some services billed based on usage, and revenueusage. Revenue recognition is not dependent upon significant judgments by management, with the exception of a determination of the provision for uncollectible amounts.expected credit losses.

Consolidated total revenue forConsumer

Consumer customer losses were driven by reductions in our copper broadband and stand-alone voice customers, offset by net additions of fiber broadband customers. Customer preferences as well as our fiber investment initiative is resulting in a migration of the customer base to fiber.

For the three and nine months ended September 30, 2017 increased $424 million to $6,911 million as2021, Frontier lost 23,000 and 92,000 of our consumer customers compared to the prior year period. Excluding additional revenue from the CTF Operations36,000 and 107,000 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 in voice services revenues, lower switchedthree and nonswitched access revenue, video, and data services revenue, each as described in more detail below.

Customer revenue for the nine months ended September 30, 2017 increased $436 million to $6,325 million as compared to2020. This includes net losses of our consumer broadband customers of approximately 4,000 and 14,000 during those same periods. These improvements are a direct result of our fiber initiatives.

For 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 thethree and nine months ended September 30, 2017 increased $203 million, or2021, we experienced 8% and 6%, as compared declines in consumer revenues, respectively. These declines were driven by a 4% decrease in the number of customers and a 3% and 2% decrease in ARPC, respectively. This decline was driven predominantly by decreases in voice, video and copper

61


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

broadband, offset by increases in fiber broadband. The Company’s fiber initiative will result in our revenue mix continuing to move to fiber broadband.

For the prior year period.  Excluding additionalthree and nine months ended September 30, 2021, we experienced 15% and 13% improvements in consumer customer revenue from the CTF Operationsfiber broadband revenues. These improvements are a result of our fiber initiative which resulted in net adds of 29,000 and 54,000 customers, and our continued focus on product positioning in both new and existing markets which resulted in ARPU improvements of $5.77 and $5.24 for the first quarterthree and nine months ended September 30, 2021 respectively.

For both the three and nine months ended September 30, 2021, we experienced approximately 1% declines in consumer copper broadband revenues, respectively. As our copper footprint is transitioned to fiber, we expect fewer copper sales opportunities, and will proactively migrate existing broadband customers from copper to fiber, both of 2017,which will reduce our copper net adds.

Business

For the three and nine months ended September 30, 2021, we experienced a 9% decline in our business and wholesale revenues, in both periods. Of these declines, wholesale revenues decreased by 16% and 12%, driven by lower rates for our network access services charged to our wholesale customers for the firstthree and nine months of 2017ended September 30, 2021, respectively. Our small and medium business and larger enterprise (SME) revenues decreased $411 million, or 13%, compared to the prior year period,2% and 5% primarily as a result of decreasesa decline in voice, video and data services revenue. Similar to other wireline providers, we have experienced declines in the number of traditional voicesmall business 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 customer revenue for the three and nine months ended September 30, 2017 increased $233 million, or 9%,2021, respectively.

62


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Revenue by product and service type was as compared to the prior year period. Excluding additional commercial customerfollows:

Successor

Predecessor

For the three

For the three

months ended

months ended

$ Increase

% Increase

($ in millions)

September 30, 2021

September 30, 2020

(Decrease)

(Decrease)

Data and Internet services

$

834 

$

838 

$

(4)

(0)

%

Voice services

411 

500 

(89)

(18)

%

Video services

149 

186 

(37)

(20)

%

Other

99 

103 

(4)

(4)

%

Revenue from contracts with customers (1)

1,493 

1,627 

(134)

(8)

%

Subsidy and other revenue

83 

99 

(16)

(16)

%

Total revenue

$

1,576 

$

1,726 

$

(150)

(9)

%

Non-GAAP

Combined

Predecessor

For the nine

For the nine

months ended

months ended

$ Increase

% Increase

($ in millions)

September 30, 2021

September 30, 2020

(Decrease)

(Decrease)

Data and Internet services

$

2,515 

$

2,542 

$

(27)

(1)

%

Voice services

1,341 

1,538 

(197)

(13)

%

Video services

477 

595 

(118)

(20)

%

Other

286 

316 

(30)

(9)

%

Revenue from contracts with customers (1)

4,619 

4,991 

(372)

(7)

%

Subsidy and other revenue

249 

277 

(28)

(10)

%

Total revenue

$

4,868 

$

5,268 

$

(400)

(8)

%

(1)Lease revenue from the CTF Operations for the first quarter of 2017,  revenuessuccessor company for 2017 declined $188 million, or 7%, as compared to the prior year period, principally as a result of decreases in our voice services revenuethree and nonswitched revenue including wireless backhaul revenue.

Consolidated switched access and subsidy revenue of $586 million represented 8% of our revenues for the nine months ended September 30, 2017. Switched access2021 was $16 million and $47 million, respectively. Lease 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 inpredecessor company for the third quarter of 2017, reflecting the rate reductions mandated by the 2011 Order,three 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 $4682020 was $16 million or 7% of our revenues, in the prior year period.  and $50 million, respectively.

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

Data and Internet Services

We provide data and internet services to our consumer, business and wholesale customers. Data and internet services includeconsist of fiber broadband services, for consumercopper broadband services and commercial customers. We provide datanetwork access revenues (data transmission services to high volume commercial customers and other carriers with dedicated high capacityhigh-capacity circuits (“nonswitched access”) including data services to wireless providers (“commonly called wireless backhaul”)backhaul). Network access services, which constitute approximately one third of this revenue category, are provided primarily to our business and wholesale customers while fiber and copper broadband, which constitute approximately two thirds of the revenue category, are provided to all customers.

DataOur fiber expansion initiative is expected to positively impact data and Internetinternet services. This network expansion will provide faster, symmetrical broadband speeds and provide customer and revenue growth opportunities for fiber broadband and certain network access products like ethernet. This initiative will also create an opportunity for us to migrate copper broadband and certain other network access products to fiber broadband and ethernet.

63


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

($ in millions)

For the three months ended

For the nine months ended

Data and internet services revenue, September 30, 2020

$

838 

$

2,542 

Change in fiber broadband revenue

34 

86 

Change in copper broadband revenue

(7)

(22)

Change in network access revenue

(26)

(85)

Impact of fresh start accounting

(2)

(4)

Change in other data and internet services

(3)

(2)

Data and internet services revenue, September 30, 2021

$

834 

$

2,515 

Upon emergence from bankruptcy, the accumulated balances in deferred installation fee revenue were eliminated as part of fresh start accounting, which has resulted in a decline in revenue recognition. After adjusting for this fresh start accounting impact, data and internet services revenue decreased $2 million and $23 million for the three and nine months ended September 30, 2021, respectively.

The revenue declines were primarily driven by Frontier’s network access revenue and were offset by 6% and 5% improvement in our broadband revenue for the three and nine months ended September 30, 2021, respectively, as compared to the corresponding periods in 2020. The increases in broadband revenue were driven by growth in fiber, offset somewhat by continued declines in copper. The Network access revenues declines were the result of an ongoing migration of our carrier customers from legacy technology circuits to lower priced ethernet circuits.

The period over period decrease in data and internet services revenue continued to improve for the three months ended September 30, 2017 decreased $89 million2021, as compared with 2016. Datato the first six months of 2021, as a result of the Company’s initiatives.

Voice Services

The Company provides voice services consisting of traditional local and long-distance service and voice over internet protocol (VoIP) service provided over our fiber and copper broadband products. It also includes enhanced features such as call waiting, caller identification and voice messaging services.

($ in millions)

For the three months ended

For the nine months ended

Voice services revenue, September 30, 2020

$

500 

$

1,538 

Change in local and long-distance service revenue

(27)

(105)

Impact of fresh start accounting

(50)

(78)

Change in other voice services revenue

(12)

(14)

Voice services revenue, September 30, 2021

$

411 

$

1,341 

Upon implementation of fresh start accounting policies, Frontier is recording both revenue and expense related to Universal Service Fund (USF) surcharges on a net basis, as opposed to recording each on a gross basis prior to emergence. After adjusting for the impact of these revenues, voice services revenue declined $39 million and $119 million for the three months ended September 30, 2017 decreased $65 million, or 11%, to $548 million, primarily due to an 8% decrease in the total number of broadband subscribers since September 30, 2016, and a decline in revenue of approximately $22 million due to the sale 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 due to lower monthly recurring revenues for wireless backhaul 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 data service revenue from the CTF Operations for the first quarter of 2017, revenue for the first nine months decreased $111 million, or 7%, 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 continue 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.

Voice Services

Voice services include traditional local and long 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 distance voice origination and termination services that we provide to our commercial customers and other carriers.

Voice services revenue for the three months ended September 30, 2017 decreased $107 million, or 13%, to $702 million as compared with 2016,2021, respectively. These declines were primarily due to the continued loss of voicenet losses in business and consumer customers and decreases in long distance revenue among thoseaddition to fewer customers that do not have 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 additionalbundling 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.  with broadband.

64


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Video Services

Video servicesinclude revenues generated from traditional television (TV) services provided directly to consumer customers through the FiOS video and Vantage video brands, and through DISHas well as satellite TV services.

services provide through Dish. We are partnering with over-the-top (OTT) video providers and expect this to grow as OTT options are offered with our broadband products. Video services also includes pay per view revenues, video on demand, equipment rentals, and video advertising. The Company has made the strategic decision to limit sales of new traditional TV services, focusing on our broadband products and OTT video options.

($ in millions)

For the three months ended

For the nine months ended

Video services revenue, September 30, 2020

$

186 

$

595 

Change in video services revenue

(30)

(106)

Impact of fresh start accounting

(7)

(12)

Video services revenue, September 30, 2021

$

149 

$

477 

Under our fresh start accounting policies, Frontier is recording both revenue and expense related to certain surcharges and taxes on a net basis, as opposed to recording each on a gross basis prior to emergence. After adjusting for the impact of these revenues, video services revenue declined $30 million and $106 million for the three months ended September 30, 2017 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 theand nine months ended September 30, 2017 increased $115 million, or 13%, to $994 million compared with 2016. Excluding additional2021, respectively. These declines were primarily driven by linear video services revenue from 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.customer losses, partially offset by price increases.

Other 

Other

Other customer revenue includes directory listing services, switched access revenue and sales of customer premisevoice and data equipment (CPE) 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, 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.

38


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Switched Access and Subsidy

business customers. 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”).traffic. 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

($ in millions)

For the three months ended

For the nine months ended

Other customer revenue, September 30, 2020

$

103 

$

316 

Change in other customer revenue

(11)

(38)

Impact of fresh start accounting

Other customer revenue, September 30, 2021

$

99 

$

286 

Under our fresh start accounting policies, Frontier has classified the provision for bad debt as expense, rather than a reduction of revenue as it was recorded prior to emergence, resulting in increases to other customer revenues of $16 million and federal authorities, including the Connect America Fund.

Switched access and subsidy revenue for the three months ended September 30, 2017 decreased $14 million, or 7%, as compared with 2016. Switched access revenue decreased $4$23 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 wireless and other communications services, combined with the lower rates required by the FCC’s 2011 Order on intercarrier compensation reform. 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 subsidy revenue for the nine months ended September 30, 2017 decreased $122021, respectively. Additionally, the accumulated balances in deferred installation fee revenue were eliminated as part of fresh start accounting, which has resulted in a $9 million or 2%, as compared with 2016.  Switched accessand $15 million decline in revenue decreased $1 millionrecognized for the three and nine months ended September 30, 2017, primarily due2021, respectively, as compared 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 Operationsprior year period. After adjusting for the first quarterimpacts of 2017,these policy changes, Other customer revenue decreased $15declined $11 million or 11%. Subsidy revenuesand $38 million for the three and nine months ended September 30, 20172021, respectively. These decreases were primarily driven by reductions in late payment fees, early termination fees and reconnect fees.

65


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Subsidy and other revenue

Subsidy and other revenue decreased $11 million.  Excluding additional subsidy revenue from the CTF Operations$16 million and $28 million for the first quarterthree and nine months ended September 30, 2021.

($ in millions)

For the three months ended

For the nine months ended

Subsidy and other revenue, September 30, 2020

$

99 

$

277 

Change in transition service revenue

(15)

(25)

Change in CAF II and other subsidies

(3)

(5)

Impact of fresh start accounting

Subsidy and other revenue, September 30, 2021

$

83 

$

249 

The transition services agreement related to the disposal of 2017,our Northwest Operations and has been discontinued. Upon implementation of new fresh start accounting policies, certain governmental grants that were historically presented on a net basis as part of capital expenditures, are presented on a gross basis and included in subsidy, resulting in increases to Subsidy and other revenue decreased $46of $2 million or 10%. We expect that switchedfor the three and nine months ended September 30, 2021.

OPERATING EXPENSES

For the three months ended

For the nine months ended

September 30,

September 30,

($ in millions)

2021

2020

2021

2020

Variance

Non-GAAP

Variance

Successor

Predecessor

%

Combined

Predecessor

%

Operating expenses:

Network access expenses

$

177 

$

226 

(22)

%

$

568 

$

753 

(25)

%

Network related expenses

413 

431 

(4)

%

1,248 

1,279 

(2)

%

Selling, general and administrative

expenses

421 

404 

%

1,227 

1,229 

-

%

Depreciation and amortization

273 

392 

(30)

%

958 

1,204 

(20)

%

Loss on Disposal of Northwest

Operations

-

-

-

%

-

160 

(100)

%

Restructuring costs and

other charges

167 

%

26 

87 

(70)

%

Total operating expenses

$

1,292 

$

1,456 

(11)

%

$

4,027 

$

4,712 

(15)

%

Network access revenue will continue to decline in the fourth quarter of 2017.expenses

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 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

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 forFor the three and nine months ended September 30, 2017 decreased $50 million, or 11%, primarily due to2021, the decrease in network access expense was driven by lower video content costs as a result of a declinedeclines in video customers, partially offset by higher promotionalnon-renewal of certain content agreements and decreased CPE costs.

66

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 CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

NETWORK RELATED EXPENSES

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 

 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

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.

Under our fresh start accounting policies we account for USF fees and certain other surcharges and taxes on a net basis instead of on a gross basis in both revenue and expense. Network related expensesexpense was $45 million and $76 million lower 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.

Network related expenses for the nine months ended September 30, 2017 increased $69 million, or 5%,2021, respectively as compared with 2016.  Excluding additional expenses from the CTF Operationsto prior year period. Adjusting for this change in accounting policy, network related expense increased $27 million and $45 million for the first quarter of 2017, network related expenses for thethree and nine months ended September 30, 2017 decreased $128 million, or 9%, primarily due to a decrease in2021, respectively. This increase was driven by increased compensation costs related to lower employee headcount and a reduction in rentalbenefits costs for vehicles.Frontier employees and increased utilities costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSESSelling, general, and administrative expenses



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

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.

As a result of the fresh start accounting policy change to classify the provision for bad debt as an expense rather than a reduction to revenue, SG&A expenses were $16 million and $23 million higher for the three and nine months ended September 30, 2021, respectively. Additionally, we have expensed $14 million and $24 million, of certain administrative items that were previously capitalized by the predecessor for the three and nine months ended September 30, 2021, respectively. Also, as a result of the fresh start accounting policy change to account for USF fees and certain other surcharges and taxes on a net basis instead of on a gross basis in both revenue and expense, SG&A Expenses decreased by $12 million and $17 million for the three and nine months ended September 30, 2021, respectively.After adjusting for these fresh start impacts changes, SG&A expense declined $1 million and $28 million for the three and nine month periods ended September 30, 2021, respectively. This decrease was a result of, reduced property taxes and lower headcount, partially offset by higher professional services and recruiting fees.

Depreciation and amortization

As a result of fresh start accounting, both Frontier’s fixed assets and intangible assets were adjusted to fair value as of the Effective Date. These changes, which decreased the carrying value of its fixed assets and increased the carrying value of its intangible assets. For the three and nine months ended September 30, 2021, the decreased depreciation and amortization expense was driven by lower depreciation expense as a result of reduced fixed asset bases following the fresh start adjustment noted above. For the nine months ended September 30, 2021, the reduction in depreciation expense was combined with lower amortization expense compared to the prior year, primarily due to the accelerated method of amortizing customer list intangibles during 2020.

Loss on disposal of Northwest Operations

During the nine months ended September 30, 2020, Frontier recorded a loss on disposal of $160 million associated with the sale of the Northwest Operations.

Restructuring costs and other charges

Restructuring costs and other charges consist of consulting and advisory fees related to our balance sheet restructuring prior to filing our Chapter 11 Cases and subsequent to the Emergence Date, workforce reductions, transformation initiatives, other restructuring expenses.

For the three months ended September 30, 2017 decreased $96 million, or 16%,2021, restructuring costs and other charges increased slightly due to lowerincreased severance and employees 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&Aresulting from workforce reductions.

4067


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATIONPARENT, INC. AND SUBSIDIARIES

(Unaudited)

expense during the third quarter of 2016 related to the Frontier Secure Strategic Partnerships business, which was sold in May of 2017.  

SG&A expenses forFor 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, 20172021, restructuring costs and other charges decreased $200 million, or 13%, primarily due to lower compensationa reduction in our consulting 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, 2016advisory fees related to our balance sheet restructuring when comparing those that were incurred prior to filing our Chapter 11 Cases and those that were incurred subsequent to the Frontier Secure Strategic Partnerships business, which was sold in May of 2017.  Emergence Date.

Pension and OPEBOther Postretirement Employee Benefit (OPEB) costs

Frontier allocates certain pension/OPEB expense to network related expenses and SG&A expenses. Total consolidatedNon-GAAP combined pension and OPEB costs, excluding pension settlementservice costs for the three and nine months ended September 30, 2017 and 2016 were2021 as follows:



 

 

 

 

 

 

 

 

 

 

 

 



 

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

The fair value estimates relatedcompared to the allocation of the purchase price of the CTF Operations to Other intangibles were revisedthree 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 resulted in higher amortization expense during the nine months ended September 30, 2017 ($20 million of which is attributable to 2016).2020 were as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

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 

%

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

For the nine months ended

September 30,

September 30,

($ in millions)

2021

2020

2021

2020

Variance

Non-GAAP

Variance

Successor

Predecessor

%

Combined

Predecessor

%

Net Pension/OPEB Costs:

Pension/OPEB service costs

$

24 

$

29 

(17)

%

$

79 

$

88 

(10)

%

Less: Costs capitalized into

capital expenditures

(6)

(5)

20 

%

(17)

(18)

(6)

%

Net Pension/OPEB Costs

$

18 

$

24 

(25)

%

$

62 

$

70 

(11)

%

Depreciation and amortization expense

OTHER NON-OPERATING INCOME AND EXPENSE

The following table represents our Non-GAAP combined financial results for the three and nine months ended September 30, 2017 decreased $39 million, or 7%, and increased $201 million, or 14%, respectively. Depreciation expense for the three months ended September 30, 2017 increased $53 million, or 16%. The increase 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, 20172021 as compared to the prior year period due to lower net asset bases as compared to 2016.  

41


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Amortization expense for the three months ended September 30, 2017 decreased $92 million, or 36% as compared with 2016. The decrease was primarily driven by the accelerated method of amortization related to customer bases acquired in 2010 and 2014, offset by an increase in the value of the acquired CTF customer base as a result of final purchase accounting adjustments in 2017. Excluding additional expense from the CTF Operations for 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.

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. Thefinancial results of our quantitative goodwill impairment test resulted in a $670 million goodwill impairment inconsolidated operations (including 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 costsNorthwest Operations) for the Pension Plan’s net periodic pension benefit cost. During the three and nine months ended September 30, 2017,2020.

For the five

For the four

For the three months ended

months ended

months ended

For the nine months ended

September 30,

September 30,

April 30,

September 30,

($ in millions)

2021

2020

2021

2021

2021

2020

Non-GAAP

Successor

Predecessor

Successor

Predecessor

Combined

Predecessor

Non-operating income (expense):

Investment and other

income (loss), net

$

(37)

$

(14)

$

(39)

$

$

(38)

$

(29)

Pension settlement costs

$

-

$

-

$

-

$

-

$

-

$

(159)

Reorganization items, net

$

-

$

(131)

$

-

$

4,171 

$

4,171 

$

(273)

Interest expense

$

(90)

$

(121)

$

(152)

$

(118)

$

(270)

$

(664)

Income tax benefit (expense)

$

31 

$

(11)

$

74 

$

(136)

$

(62)

$

(91)

Net income (loss)

$

126 

$

15 

$

225 

$

4,541 

$

4,766 

$

(352)

68


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Investment and other income (loss), net

Investment and other loss, net increased by $23 million and $9 million for the three and nine months ended September 30, 2021, respectively, driven by higher net non-operating pension and OPEB expense as compared to the prior year. This decrease was driven by reduced pension expense as a result of the elimination of actuarial losses that were amortized from accumulated other comprehensive income (loss) prior to emergence, offset by increased OPEB expense including remeasurement charges of $13 million recognized in May 2021 and $54 million recognized in August 2021.

Pension settlement

During the nine months ended September 30, 2020, lump sum pension settlement payments

42


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

to terminated or retired individuals amounted to $87 million and $449$464 million, which exceeded the settlement threshold of $224$211 million, and as a result, Frontier recognized non-cash settlement charges totaling $77$159 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

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

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, and corresponding changes to our retirement plans.

Restructuring costs and other charges increased in 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 compared2020.

Reorganization items, net

The Company has incurred costs associated with the reorganization, primarily the write-off of certain debt issuance costs and net discounts, financing costs, and legal and professional fees and fresh start accounting adjustments. These include expenses incurred subsequent 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 sale of the Frontier Secure Strategic Partnerships business.

43


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

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 nine months ended September 30, 2016 included interest income 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.

Loss on Extinguishment of Debt and Debt Exchanges

Petition Date. During the nine months ended September 30, 2017,2021, Frontier recorded a loss on early extinguishmentrecognized $4,171 million in reorganization items associated with the restructuring of our balance sheet primarily due to the $11 billion gain associated with the cancellation of debt, of $89 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.other adjustments related to emergence and fresh start accounting.

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 $52020, Frontier incurred $131 million or 1%, and $12$273 million or 1%, as compared toin reorganization costs, respectively, associated with the restructuring of our balance sheet.

Interest expense

For the three and nine months ended September 30, 2016. We incurred additional2021 interest expense decreased $31 million and $394 million, respectively, as compared to the same periods in 2020. The decline in interest expense was primarily driven by reduced interest rates resulting from the refinancing of $19 million in 2017 onour secure debt, the $1,625 million term loan facilityunrecorded interest related to our unsecured notes prior to emergence from bankruptcy, and the CTF Acquisition. Our compositeoverall reduction in our principal debt balance. The weighted average borrowinginterest rate as of September 30, 20172021 and 20162020 was 8.36%5.658% and 8.55%8.668%, respectively.

Income tax benefitexpense (benefit)

IncomeDuring the four months ended April 30, 2021, the Predecessor recorded an income tax benefit of $136 million on pre-tax income of $4,405 million. The driver for the three and ninebenefit was the tax effect of fresh start accounting adjustments. During the five months ended September 30, 2017 decreased $152021, the successor recorded income tax expense of $74 million on pre-tax income of $299 million. Our effective tax rates for the four months ended April 30, 2021 and increased $68 million,the five months ended September 30, 2021 were (3.1%) and 24.7%, respectively.


69


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(b) Liquidity and Capital Resources

Frontier emerged from the Chapter 11 Cases on the effective date with a new capital structure consisting of significantly lower levels of long-term debt as compared to the threeCompany’s historical debt levels. The reorganization resulted in the elimination of approximately $11 billion of our long-term debt and nine months ended September 30, 2016. The effective tax ratea corresponding decrease in the capital needed for debt service requirements. Following emergence, we expect that our principal uses of cash and capital resources will be to fund the cost of operations, working capital, and capital expenditures and to fund interest payments on our pretax loss for the nine months ended September 30, 2017 was 26.5% as compared with 42.0% for the nine 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.    long-term debt.

44


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Net loss attributable to Frontier common shareholders

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 $134 million, or ($1.73) per share, in the third quarter of 2016,  and net loss for the first nine months of 2017 of $936 million, or ($12.06) per share, 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.

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.

(b)  Liquidity and Capital Resources

Analysis of Cash Flows

As of September 30, 2017,2021, we had unrestricted cash and cash equivalents aggregating $286$1,211 million. Our primary source of funds during the nine 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, 2017,2021, we used cash flow from operations, cash on hand, and cash from prior year borrowings principally to principally fund all ofpayments related to our emergence from Chapter 11 bankruptcy and our cash investing and financing activities, which were primarily capital expenditures, dividendsexpenditures.

On October 13, 2021, our consolidated subsidiary Frontier Communications Holdings, LLC, issued $1.0 billion aggregate principal amount of 6.0% second lien secured notes due 2030 in an offering pursuant to exemptions from the registration requirements of the Securities Act. The Company intends to use the net proceeds of this offering to fund capital investments and debt repayments.

Atoperating costs arising from the Company’s fiber build and expansion of its fiber customer base, and for general corporate purposes. Giving effect to this offering, our liquidity as of September 30, 2017,2021, would have been $2.7 billion.

As of September 30, 2021, we had a working capital deficitsurplus of $531$307 million including $166 million of long-term debt due within one year, as compared to a working capital$4,486 million deficit of $788 million at December 31, 2016. 2020. The decreaseprimary driver for the change in the working capital deficit is primarily due toat September 30, 2021 was classification of our long-term debt as current as a decrease in current liabilitiesresult of $651 million, partially offset by a reduction in accounts receivable of $158 million. the Chapter 11 Cases.

Non-GAAP

Combined

Predecessor

For the nine

For the nine

months ended

months ended

($ in millions)

September 30, 2021

September 30, 2020

Cash provided by (used for):

Operating activities

$

329 

$

1,492 

Investing activities

$

(1,135)

$

315 

Financing activities

$

180 

$

(791)

Cash Flows provided byfrom Operating Activities

CashNon-GAAP combined cash flows providedused by operating activities increased $223decreased $1,163 million to $1,185$329 million for the nine months ended September 30, 20172021 as compared withto the prior year period.nine months ended September 30, 2020. The increaseoverall decrease in operating cash flows was primarily the result of the additionpayments of excess cash to unsecured senior noteholders and payments of prepetition accounts payable following our CTF Operations, partially offset by unfavorable changes in working capital, along with higher interest expense.emergence from bankruptcy totaling $1,169 million.

We received $4 million and $35paid $36 million in net cash tax refundstaxes during the nine months ended September 30, 20172021 and 2016, respectively.

In connection with the CTF Acquisition, Frontier recognized acquisition and integration costs of $15$6 million in net cash taxes during the first nine months of 2017ended September 30, 2020.

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PART I. FINANCIAL INFORMATION (Continued)

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(Unaudited)

Cash Flows from Investing Activities

Non-GAAP combined cash flows used in investing activities were $(1,135) million for the nine months ended September 30, 2021, compared to $387cash flows provided by investing activities of $315 million duringfor the first nine months of 2016. Interest expense of $581 million 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 millioncorresponding period 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 2016.2020.

Cash Flows used by Investing Activities

Capital Expenditures

For the nine months ended September 30, 20172021 and 2016,2020, our Non-GAAP combined capital expenditures were $865$1,146 million and $1,059$825 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 to be approximately $1.15 billionour existing copper network, a trend that we expect to $1.2 billioncontinue as we execute our strategy of investing in 2017,our fiber network.

In the second quarter of 2020, we received $1,131 million in proceeds from the sale of our Northwest Operations.

Cash Flows from Financing Activities

Cash flows provided by financing activities increased $971 million to $180 million for the nine months ended September 30, 2021 as compared to $1.26 billion2020. The increase is primarily the result of receiving $225 million in 2016.proceeds from the exit term loan facility in 2021, offset by full repayment of the revolver in September 30, 2020 of $749 million.

Capital Resources

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Cash Flows used by and providedThe Restructuring resulted in a new capital structure with significantly lower levels of long-term debt. Upon emergence, our consolidated long-term debt decreased from Financing Activities

Debt Reduction

approximately $16,769 million to $6,738 million. During the first nine months ended September 30, 2021, we paid $205 million of 2017, Frontier usedcash interest.

In connection with the Restructuring, we paid $1,313 million to Old Frontier’s unsecured senior note holders, $62 million related to prepetition accounts payable and contract cure payments and $22 million for professional fees and other bankruptcy related costs.

We expect that our primary anticipated uses of liquidity will be to fund the costs of operations, working capital and capital expenditures and to fund interest payments on our long-term debt. Our primary sources of liquidity are cash flows from operations, cash on hand for the scheduled retirement of $328and borrowing capacity under our $625 million Revolving Facility (as reduced by $90 million of debt,Letters of Credit.)

Our Credit Facilities, including $210our $1,468 million of unsecured 8.25% senior notes at maturity, and contractual payments of principal for debt of $118 million. Additionally, Frontier used cash proceeds from the Term Loan BFacility and $625 million Revolving Facility, and the indentures governing our outstanding secured First Lien Notes and Second Lien Notes are described in detail in Note 11 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 due 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 limitationsfinancial statements contained in Part I of this report.

We have assessed our indenturescurrent and credit facilities, we may from time to time make repurchasesexpected funding requirements and our current and expected sources of liquidity, and have determined, based on 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 believeforecasted financial results and financial condition as of September 30, 2021, that 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, pay taxes pay dividends to our stockholders, and support our short-term and long-term operating strategies for the next twelve months.make other payments. 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 of September 30, 2017, we had $42 million of debt maturing during the last three months of 2017; $743 million and $828 million of debt will mature in 2018 and 2019, respectively.

Term Loan and Revolving Credit Facilities

On February 27, 2017, Frontier entered into a first amended and restated credit agreement with JPMorgan Chase Bank, N.A., 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 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 maturities of the Term Loan A, the Revolver, and 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 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 Agreement is based on margins over the Base Rate (as defined in the JPM Credit Agreement) or over LIBOR, at 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 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.

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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), matures on October 24, 2019, and the second, for a $315 million senior term loan

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(Unaudited)

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

Net Operating Losses

In connection with the 2014 CoBank Credit Agreement andCompany’s emergence from bankruptcy, the 2016 CoBank Credit Agreement collectively as the CoBank Credit Agreements.

RepaymentCompany consummated a taxable disposition of substantially all of the outstanding principal balance under eachassets and/or subsidiary stock 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 eachCompany. Certain of the CoBank Credit Agreements bear interest basedNOLs were utilized in offsetting gains from the disposition, certain of the NOLS were extinguished as part of attribute reduction and certain subsidiary NOLS were carried over. Under Section 338(h)(10) of the Code, Predecessor and Successor made elections to step-up tax basis of certain subsidiary assets. Such Section 338(h)(10) elections will generate depreciation and amortization expense going forward, which may result in net operating losses 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,a go forward basis. Such net operating losses would be carried forward indefinitely but would be subject to adjustment basedan 80% limitation 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.U.S. taxable income.

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). As of September 30, 2017, $129 million of undrawn Standby Letters of Credit had been issued under the LC Agreements. Borrowings under the LC Agreement are secured by a pledge of the stock of certain Frontier subsidiaries and guaranties by certain Frontier subsidiaries.

Covenants 

The terms and conditions contained in one or more of our indentures, the CoBank Credit Agreements and the JPM Credit Agreement include covenants that, among other things, place restrictions on the following: the incurrence of liens on our and our subsidiaries’ assets securing indebtedness; the incurrence of indebtedness by us and our subsidiaries; the payment of dividends and other restricted payments; selling or transferring assets; the maximum levels of our leverage and secured leverage ratios; and the entry into mergers or other changes in corporate control.  All of the above restrictions are subject to important, detailed qualifications and exceptions that are included in the JPM Credit Agreement, filed as an exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017 and in the CoBank Credit Agreements and our indentures, filed as exhibits to our Annual Report on Form 10-K 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.

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%

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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, the acceleration of substantially all of our debt, and the application of fresh start accounting, 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,deployment deadline of December 31, 2021 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.received and may be subject to certain other requirements and obligations.

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 thanExcept for the updated indefinite-lived intangibles discussion below,application of fresh start accounting, there 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 impactSee Note 1 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,

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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 duenotes 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 assumptionsfinancial statements for updated accounting policies related to the forecasted results for the remainderapplication 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. fresh start accounting.

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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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 acceptedThe CAF II funding runs through and the Company must complete the CAF II deployment by December 31, 2021. Thereafter, the FCC will review carriers’ CAF II program completion data and if the FCC determines that the Company did not satisfy applicable FCC CAF Phase II offer in 29 states, including our CTF properties, which provides for $332 million in annual support throughrequirements, Frontier could be required to return a portion of the funds previously received and may be subject to certain other requirements and obligations.

On January 30, 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 annual CAF II funding is less than 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.

In February 2017, 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 in 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, and 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 consumer 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 consumer 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. Some 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 voice and broadband services to fixed locations in unserved high-cost areas;length of the auction will also account for other service elements suchstate 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 the minimum data speed provided and data usage allowances.  Theof September 30, 2021, very few

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auctionhad past due balances beyond the point of normal disconnection. Given the unprecedented and evolving nature of the pandemic and the evolving response of multiple levels of government, the impact of potential changes on the Company 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 participating in the program. In March 2021, Congress also passed the American Rescue Plan Act (“ARPA”) of 2021 which created a new $10 billion Coronavirus Capital Projects Fund that will be available to beginthe states for critical capital projects, including broadband infrastructure products, that directly enable work, education, and health monitoring. The ARPA also dedicated $350 billion to State and Local Coronavirus Fiscal Recovery Funds, which give states and localities the discretion to target a portion of the funding to broadband infrastructure, among many other permissible expenditure categories. Additionally, the President has proposed, and Congress continues to consider, $100 billion in 2018 though the exact timeframe is unknown.additional funding for broadband infrastructure and adoption programs. Frontier has not yet determined whether it will participate in any competitive bid processcannot say at this time whether the federal government, states, and becauselocalities 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 ARPA 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 has established rules prioritizing funding for on-campus services and devices, and 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 revenuesif any, 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%2021, 78% of our total debt had fixed interest rates. We had no interest rate swap agreements in effect at September 30, 2017.2021. 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 September 30, 2021, our discount rate utilized in calculating our benefit plan obligation was 3.10%.

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 million22% of our outstanding borrowings at September 30, 20172021 have floating interest rates. Our undrawn $850The annual impact of 100 basis points change in the LIBOR would result in approximately $15 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

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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, 2017,2021, the fair value of our long-term debt was estimated to be approximately $15.5 billion,$7,070 million, based on quoted market prices, our overall weighted average borrowing rate was 8.36%5.658% and our overall weighted average maturity was approximately sixeight years. As of September 30, 2017, there has been no significant change in2021, the weighted average maturity applicable to our obligations sinceincreased from 4.9 years as of December 31, 2016.2020. 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, 20172021 is primarily limited to our pension plan assets. We have no other security investments of any significant amount.

Our Pension PlanThe value of our pension plan assets decreasedincreased $79 million from $2,766$2,507 million at December 31, 20162020 to $2,604$2,586 million at April 30, 2021. This increase primarily resulted from contributions of $32 million and investment returns of $78 million, partially offset by benefit payments to participants of $25 million and plan expenses of $6 million.

The value of our pension plan assets increased $12 million from $2,586 million at April 30, 2021 to $2,598 million at September 30, 2017, a decrease2021. This increase primarily resulted from investment returns of $162 million, or 6%. This decrease was a result of benefit payments of $492$68 million, partially offset by positive investment returnsbenefit payments to participants of $270$51 million netand plan expenses 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.$5 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

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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, 2017,2021, 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 third fiscal quarterfirst nine months of 20172021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting.

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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 and in connection with certain disclosures relating to the CTF transaction. 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.  On March 8, 2019, the District Court granted in its entirety Frontier’s motion to dismiss the complaint and on March 24, 2020, the court denied plaintiffs’ motion for leave to amend. Plaintiffs appealed and prior to oral argument, the parties reached an agreement in principle to resolve the matter. The settlement, which will require court approval and will be covered by insurance, will have no material financial impact on the Company.  In addition, shareholders filed derivative complaints on behalf of the Notes to Consolidated Financial Statements includedCompany in Part I, Item 1 of this report. ThereConnecticut, California, and Delaware courts. The derivative complaints are based, generally, on the same facts asserted in the consolidated class action complaint.  Frontier believes the derivative complaints are meritless and does not expect those cases will have been noa material changes to our legal proceedings fromfinancial impact on the information provided in Item 3. “Legal Proceedings” included in our Annual Report on Form 10-K for the year ended December 31, 2016.  Company.

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.

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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, which updated and replaced the “Risk Factors” described in Part 1, Item 1A 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, 2017.2021.

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 



 

 

 

 

 

 

 

(1) Includes

Upon emergence from the Chapter 11 Cases on April 30, 2021, all equity interests in Frontier outstanding prior to the Effective Date were canceled, released, and extinguished, and we are of no further force or effect and Reorganized Frontier issued a total of 244,401,000 shares withheld (underof common stock to the termsholders 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. Frontier’s stock compensation plans provide that the value of shares withheld shall be based on the averageexisting Senior Notes in partial satisfaction of the high and low priceallowed Senior Notes claims.

The shares of our common stock ondescribed above are exempt from registration under the date the relevant transaction occurs, for shares vested priorSecurities Act pursuant to May 2017.  Beginning in May 2017, the valueSection 1145 of the shares withheld shall be based onBankruptcy Code (which generally exempts from such registration requirements the closing priceissuance of our common stock on the date the relevant transaction occurs.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:

Exhibit

Number

Description

31.1

4.1

Indenture, dated as of October 13, 2021, by and among Frontier Communications Holdings, LLC, the guarantors party thereto, the collateral grantor party thereto and Wilmington Trust, National Association, a national banking association, as trustee and as collateral agent (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on October 14, 2021).

4.2

Form of 6.000% Second Lien Secured Notes due 2030 (included in Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on October 14, 2021).

10.1

Amendment No. 1 to Amended and Restated Credit Agreement, dated as of October 13, 2021, by and among Frontier Communications Holdings, LLC, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, Goldman Sachs Bank USA, as revolver agent, and the lenders party thereto (filed as Exhibit 10.1 to Frontier’s Current Report on Form 8-K filed on October 14, 2021).

22

Subsidiaries of the Registrant

31.1

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

31.2

31.2

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

32

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 June 30, 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.

101.PRECover Page from Frontier’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in iXBRL and contained in Exhibit 101.

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.


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54


PART II. OTHER INFORMATION

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 CORPORATIONPARENT, INC.

(Registrant)

By: /s/ Donald Daniels

Donald Daniels

Senior Vice President and ControllerChief Accounting Officer

(Principal Accounting Officer)

Date: November 2, 20173, 2021

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