(1) Summary of Significant AccountingAccounting 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. 2021. 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.
In 2021, we recategorized our previous operating expenses categories (“Network access expenses” and “Network related expense”) into one expense line: “Cost of service”. All historical periods presented have been updated to conform to the new categorization. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation. For our interim financial statements as of and for the period ended SeptemberJune 30, 2017,2022, 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)(“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.
We operateChapter 11 Bankruptcy Emergence
As described in one reportable segment. Frontier provides both regulatedNote 3 Emergence from the Chapter 11 Cases, and unregulated voice, dataNote 4 Fresh Start Accounting, to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2021, on April 30, 2021, (the “Effective Date”), the Company emerged from bankruptcy. Accordingly, the consolidated financial information has been prepared in conformity with Accounting Standards Codification Subtopic 852-10 (ASC 852), Reorganizations, for the Successor as a new entity with assets, liabilities, and video services to consumer, commercial and wholesale customers and is typically the incumbent voice services provider in its service areas.a capital structure having carrying amounts not comparable with prior periods.
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
Reorganization items incurred in the par valuefirst four months of 2021 as a result of the common stock,Chapter 11 Cases included a gain on settlement of liabilities subject to compromise of $5,274 million, fresh start valuation adjustment charges of $1,038 million, debtor-in-possession financing costs of $15 million and no fractional shares$50 million in professional fees and other bankruptcy related costs presented separately in the accompanying consolidated statements of income.
The Company incurred significant costs associated with the reorganization, primarily legal and professional fees. Subsequent to April 14, 2020 (the “Petition Date”), these costs were issued. All shareexpensed as incurred and per share amountssignificantly affected our consolidated results of operations. From the Petition Date to the Effective date, these costs were included in “Reorganization items, net” on our consolidated statement of income. For the periods prior to the Petition date and following the Effective Date, these costs have been included in “Restructuring costs and other charges” on our consolidated statement of income. Refer to Note 9.
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 of operations of Frontier Communications Corporation and its subsidiaries on or before the Effective Date (“Old Frontier”).
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 income, included within “Revenue” and “Cost of service 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 our Series A Preferred Stockparticipants. 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 income.
Government Grants Revenue - Certain governmental grants that were proportionately adjusted.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 income.
(b) 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 income.
c) 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
PART I. FINANCIAL INFORMATION (Continued)
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
revenue in our consolidated statements of operationsincome 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 “Cost of services”.
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, using a portfolio approach over the average term ofcustomer life.
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.
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 operations and included within “Revenue” and “Network related expenses” of $52 million and $60 million, and $160 million and $161amounted to $83 million for the three and ninefour months ended SeptemberApril 30, 2017 and 2016, respectively.2021.
In June 2015, weFrontier accepted the FCC’sFCC offer of support to price cap carriers under the Connect America Fund (CAF)(“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 programwas intended to subsidize theprovide long-term support for broadband build commitments in high cost of establishing and delivering communications services to certain unserved or underserved areas. We are recognizing theserecognized FCC’s CAF Phase II subsidies into revenue on a straight linestraight-line basis over the seven-year funding term which is consistent with howended on December 31, 2021. We have accrued an amount for any potential shortfall in the costs related to these subsidies are being and are expectedhousehold build commitment that we deem to be incurred. CAFprobable and reasonably estimated, and we do not expect that any potential penalties, if ultimately incurred, will be material in comparison to the established accrual.
In May 2022, Frontier accepted the FCC offer under the Rural Digital Opportunity Fund (“RDOF”) Phase II is a multi-yearI program, which requires usprovides funding over a ten-year period to deploysupport the construction of broadband networks in rural communities across the country. Frontier accepted $37 million in annual support through 2032 in return for the Company’s commitment to make broadband available to households within the RDOF eligible areas. We will recognize the FCC’s RDOF Phase I subsidies into revenue on a specified number of households in each ofstraight-line basis over the states whereten-year funding was accepted. Failureterm which will end March 31, 2032. The Company is required to meet ourcomplete the RDOF deployment obligations atby December 31, 2028. Thereafter, the end ofFCC will review carriers’ RDOF program completion data, and if the program in 2020 would result in aFCC determines that the Company did not satisfy applicable FCC RDOF requirements, Frontier could be required to return of a portion of the funds previously received and may be subject to certain other requirements and obligations. We will accrue an amount for any potential shortfall in the household build commitment that we deem to be probable and reasonably estimated.
d)Cash Equivalents:
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash of $17 million is included in “Other current assets” as of December 31, 2021, and $30 million and $34 million are included in “Other assets” on our consolidated balance sheet as of June 30, 2022 and December 31, 2021, respectively.
e) Short-Term Investments:
Given the long-term nature of our fiber build, we have invested cash into short-term investments to improve interest income while preserving funding received.flexibility. We regularly evaluate our ability to meet our broadband deployment obligations and adjust revenue accordingly.
We categorize our products, serviceshave classified these short-term deposits and other revenues among the following five categories:investments that have original maturities of greater than three months but less than one year as short-term investments.
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| | 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”);
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| | 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;
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| | Video services include services provided directly to consumer customers through the FiOS® and Vantage video brands, and through DISH® satellite TV services;
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| | Other includes sales of customer premise equipment to our commercial customers and directory services, less our provision for bad debts; and
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| | 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.
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As of June 30, 2022, short-term investments of $2,300 million are comprised of term deposits earning interest in excess of traditional bank deposit rates, maturing between July 15, 2022, and November 15, 2022, and placed with banks with A-1/P-1 or equivalent credit quality. These short-term investments are in scope of ASC 320, Investments - Debt Securities. The short-term investments’ original maturity is greater than 90 days but less than one year, and they are classified as held to maturity, recorded as current assets, and are accounted for at amortized cost.
f)Definite and Indefinite Lived Intangible Assets:
The following table provides a summary of revenues from external customers by the categories of Frontier’s productsIntangible assets are initially recorded at estimated fair value. Old Frontier historically amortized its acquired customer lists and services:
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| | For the three months ended | | For the nine months ended | |
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($ in millions) | | 2017 | | 2016 | | 2017 | | 2016 | |
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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 | |
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(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 andcertain 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 as of September 30, 2017 as a result of the continued decline in share price of our common stock since June 30, 2017, the date of our last goodwill impairment test. Refer to Note 6 for a discussion of our goodwill impairment testing and results as of September 30, 2017. As stated in Note 2, we early adopted ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” during the second quarter of 2017 in conjunction with our goodwill impairment assessment.
Frontier amortizes 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 lives 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, asor more often if indicators of December 31impairment arise, to assessdetermine whether any potentialthere is evidence that indicates an impairment exists and whether factorscondition may exist that would necessitate a change in useful life and a different amortization period.
g)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.
We assess potential impairments to our leases annually, or as indicators exist, if indicators of impairment arise to determine whether there is evidence that indicate an impairment condition may exist. We continue to review our real estate portfolio and, during the first quarter of 2022, determined to either terminate or market for sublease certain facilities leases, which triggered an impairment of $44 million for our finance and operating lease assets recorded as restructuring charges and other costs. See Note 9 for further details.
(2) Recent Accounting Literature:
Recent Accounting Pronouncements Not Yet Adopted
Revenue RecognitionReference Rate Reform
In May 2014,March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers.”Reporting". This standard along with itsprovides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. The standard applies to contracts and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. Frontier is evaluating the impact of the adoption of this standard, including optional expedients, on our consolidated financial statements.
Government Assistance
In November 2021, the FASB issued ASU 2021-10, which requires business entities to disclose information about certain government assistance they receive. Such disclosure requirements include the nature of the transactions and the related amendments, requires companiesaccounting policy used, the line items on the balance sheet and income statement that are affected and the amounts applicable to recognize revenue to depict 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 annualeach financial statement line item and interim reporting periods beginning with the first quarter of 2018. significant
“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 assetterms 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 adoptionconditions 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 standardtransactions. ASU 2021-10 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 income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to 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 guidance 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. Frontier is in the initial stages of evaluating the potential impact this new standard may have on the consolidated financial statements.
Compensation – Retirement Benefits
In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. This standard was established to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost by requiring that an employer disaggregate the service cost component of periodic benefit cost from the other components of net benefit cost. The amendments in the update also provide explicit guidance on how to present the service cost component and other components of net benefit cost in the income statement and allow only the service cost components of net benefit cost to be eligible for capitalization. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods and requires2021 (year ending December 31, 2022 for the presentationCompany). Early adoption is permitted. The Company is currently evaluating the impact the adoption of the income statement to be applied retrospectively. 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. ThisASU 2021-10 will have on its disclosures.
(3) 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 material impactnumber 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 previously reported operating incomedemand, equipment rentals, and may havevideo 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, rents collected for colocation services, and revenue from other services and fees. Switched access revenue includes revenues derived from allowing other carriers to use our network to originate and/or terminate their local and long-distance voice traffic. These services are primarily billed on a material impact to operating income in future periods, however,minutes-of-use basis applying tariffed rates filed with the impact to pre-tax income is not expected to be material.FCC or state agencies; and
Subsidy and other regulatory revenue include revenues generated from cost subsidies from state and federal authorities, including CAF II and RDOF.
The following tables provide a summary of revenues, by category:
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| Successor |
| Successor |
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| Predecessor |
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| For the three months ended June 30, |
| For the two months ended June 30, |
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| For the one month ended April 30, |
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| ($ in millions) |
| 2022 |
| 2021 |
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| 2021 |
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| Data and Internet services |
| $ | 847 |
| $ | 556 |
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| $ | 283 |
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| Voice services |
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| 381 |
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| 283 |
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| 160 |
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| Video services |
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| 134 |
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| 105 |
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| 54 |
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| Other |
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| 80 |
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| 62 |
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| 30 |
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| Revenue from contracts with customers (1) |
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| 1,442 |
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| 1,006 |
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| 527 |
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| Subsidy and other revenue (2) |
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| 17 |
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| 55 |
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| 28 |
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| Total revenue |
| $ | 1,459 |
| $ | 1,061 |
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| $ | 555 |
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| Successor |
| Successor |
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| Predecessor |
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| For the three months ended June 30, |
| For the two months ended June 30, |
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| For the one month ended April 30, |
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| ($ in millions) |
| 2022 |
| 2021 |
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| 2021 |
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| Consumer |
| $ | 791 |
| $ | 543 |
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| $ | 283 |
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| Business and wholesale |
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| 651 |
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| 463 |
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| 244 |
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| Revenue from contracts with customers (1) |
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| 1,442 |
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| 1,006 |
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| 527 |
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| Subsidy and other revenue (2) |
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| 17 |
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| 55 |
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| 28 |
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| Total revenue |
| $ | 1,459 |
| $ | 1,061 |
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| $ | 555 |
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Recently Adopted Accounting Pronouncements
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| Successor |
| Successor |
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| Predecessor |
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| For the six months ended June 30, |
| For the two months ended June 30, |
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| For the four months ended April 30, |
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| ($ in millions) |
| 2022 |
| 2021 |
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| 2021 |
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| Data and Internet services |
| $ | 1,683 |
| $ | 556 |
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| $ | 1,125 |
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| Voice services |
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| 767 |
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| 283 |
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| 647 |
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| Video services |
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| 271 |
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| 105 |
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| 223 |
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| Other |
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| 163 |
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| 62 |
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| 125 |
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| Revenue from contracts with customers (1) |
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| 2,884 |
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| 1,006 |
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| 2,120 |
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| Subsidy and other revenue (2) |
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| 22 |
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| 55 |
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| 111 |
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| Total revenue |
| $ | 2,906 |
| $ | 1,061 |
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| $ | 2,231 |
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| Successor |
| Successor |
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| Predecessor |
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| For the six months ended June 30, |
| For the two months ended June 30, |
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| For the four months ended April 30, |
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| 2022 |
| 2021 |
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| 2021 |
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|
|
|
|
|
|
|
|
| Consumer |
| $ | 1,567 |
| $ | 543 |
|
| $ | 1,133 |
|
| Business and wholesale |
|
| 1,317 |
|
| 463 |
|
|
| 987 |
|
| Revenue from contracts with customers (1) |
|
| 2,884 |
|
| 1,006 |
|
|
| 2,120 |
|
| Subsidy and other revenue (2) |
|
| 22 |
|
| 55 |
|
|
| 111 |
|
| Total revenue |
| $ | 2,906 |
| $ | 1,061 |
|
| $ | 2,231 |
|
Share-Based Payments - Scope of Modification Accounting
In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting which amends the scope of modification accounting for share-based payment arrangements. This standard provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions,
(1)Lease revenue included in “Revenue from contracts with customers” was $16 million and classification of the awards are the same immediately before and after the modification. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods and early adoption is permitted including in any interim period. Frontier has adopted this standard during the second quarter 2017, with no impact to our share-based payment awards.
Intangibles – Goodwill
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” This standard was established to simplify how an entity is required to test goodwill for impairment by eliminating Step 2from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge$32 million for the amount by whichthree and six months ended June 30, 2022, respectively, $11 million for the carrying amount exceedstwo months ended June 30, 2021, and $5 million and $26 million for the reporting unit’s fair value; however,one and four months ended April 30, 2021, respectively.
(2)Subsidy and other revenue for the loss recognized shouldthree and six months ended June 30, 2022, does not exceedinclude revenue from CAF II as the total amount of goodwill allocatedprogram ended in 2021. We began 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 requirementsreceive funding 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 disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Frontier early adopted this standard duringRDOF in the second quarter of 2017 in conjunction with our goodwill impairment assessment. See Note 1 and Note 6 for further discussion. 2022.
Compensation – Stock Compensation
(3) Acquisitions:
The CTF Acquisition
On April 1, 2016, Frontier acquired the wireline operations of Verizon Communications, Inc. in California, Texas and Florida (the CTF Operations) forfollowing is a purchase price of $10,540 million in cash and assumed debt (the CTF Acquisition), pursuant to the February 5, 2015 Securities Purchase Agreement, as amended. The final allocationsummary of the purchase price presented below representschanges in the effectcontract assets and contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contract Assets |
| Contract Liabilities |
|
| ($ in millions) |
| Current |
| Noncurrent |
| Current |
| Noncurrent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2021 (Successor) |
| $ | - |
| $ | - |
| $ | 27 |
| $ | 11 |
|
| Revenue recognized included |
|
|
|
|
|
|
|
|
|
|
|
|
|
| in opening contract balance |
|
| - |
|
| - |
|
| (20) |
|
| (5) |
|
| Credits granted, excluding amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| recognized as revenue |
|
| - |
|
| - |
|
| 18 |
|
| 11 |
|
| Reclassified between current |
|
|
|
|
|
|
|
|
|
|
|
|
|
| and noncurrent |
|
| - |
|
| - |
|
| 2 |
|
| (2) |
|
| Balance at June 30, 2022 (Successor) |
| $ | - |
| $ | - |
| $ | 27 |
| $ | 15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contract Assets |
| Contract Liabilities |
|
| ($ in millions) |
| Current |
| Noncurrent |
| Current |
| Noncurrent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2020 (Predecessor) |
| $ | 6 |
| $ | 9 |
| $ | 58 |
| $ | 20 |
|
| Revenue recognized included |
|
|
|
|
|
|
|
|
|
|
|
|
|
| in opening contract balance |
|
| (4) |
|
| - |
|
| (23) |
|
| (3) |
|
| Cash received, excluding amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| recognized as revenue |
|
| - |
|
| - |
|
| 22 |
|
| 2 |
|
| Balance at April 30, 2021 (Predecessor) |
| $ | 2 |
| $ | 9 |
| $ | 57 |
| $ | 19 |
|
| Fresh start accounting adjustments |
|
| (2) |
|
| (9) |
|
| (42) |
|
| (18) |
|
| Balance at April 30, 2021 (Predecessor) |
| $ | - |
| $ | - |
| $ | 15 |
| $ | 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at April 30, 2021 (Successor) |
| $ | - |
| $ | - |
| $ | 15 |
| $ | 1 |
|
| Revenue recognized included |
|
|
|
|
|
|
|
|
|
|
|
|
|
| in opening contract balance |
|
| - |
|
| - |
|
| (4) |
|
| (1) |
|
| Cash received, excluding amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| recognized as revenue |
|
| - |
|
| - |
|
| 8 |
|
| 4 |
|
| Reclassified between current |
|
|
|
|
|
|
|
|
|
|
|
|
|
| and noncurrent |
|
| - |
|
| - |
|
| (1) |
|
| 1 |
|
| Balance at June 30, 2021 (Successor) |
| $ | - |
| $ | - |
| $ | 18 |
| $ | 5 |
|
The unsatisfied obligations for retail customers consist of recordingamounts in advance billings, which are expected to be earned within the fair value of assets acquired and liabilities assumed as of the date of the CTF Acquisition,following monthly billing cycle. Unsatisfied obligations for wholesale customers are based on a point-in-time calculation and determined by the total transaction cash considerationnumber of $9,871 million.circuits provided and the contractual price. These wholesale customer obligations change from period to period based on new circuits added as well as circuits that are terminated.
| | | |
| | | |
($ in millions)
| | |
| | | |
Current assets
| | $
| 353 |
Property, plant & equipment
| | | 6,096 |
Goodwill
| | | 2,606 |
Other intangibles - primarily customer list
| | | 2,262 |
Current liabilities
| | | (579) |
Long-term debt
| | | (544) |
Other liabilities
| | | (323) |
Total net assets acquired
| | $
| 9,871 |
| | | |
The fair value estimates 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 $98 million increase in Goodwill.
The following unaudited pro forma financial information presents the combined results of operations of Frontier and the CTF Operations as if the CTF Acquisition had occurred as of January 1, 2016. The pro forma information is not necessarily indicative of what the financial position or results of operations actually would have been had the CTF Acquisition been completed as of January 1, 2016. In addition, the unaudited pro forma financial information is not indicative of, nor does it purporttable includes estimated revenue expected to project,be recognized in the future financial position or operating results of Frontier. The unaudited pro forma financial information excludes acquisition and integration costs and does not give effectrelated to any estimated and potential cost savings or other operating efficiencies that may result from the CTF Acquisition.
| | | | | |
| | | | | |
| | | | | |
| | (Unaudited)
|
| | For the nine months ended
|
($ 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 expensesperformance obligations that are incremental and directly related tounsatisfied at the acquisition, which were incurred to integrateend of the network and information technology platforms. Integration costs also include costs to achieve synergies and operational efficiencies directly associated with the acquisition. reporting period:
Frontier incurred operating expenses related to the CTF Acquisition as follows:
|
|
|
|
|
|
| ($ in millions) |
| Revenue from contracts with customers |
|
| 2022 (remaining six months) |
| $ | 461 |
|
| 2023 |
|
| 407 |
|
| 2024 |
|
| 270 |
|
| 2025 |
|
| 135 |
|
| 2026 |
|
| 83 |
|
| Thereafter |
|
| 91 |
|
| Total |
| $ | 1,447 |
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | 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 | | | 1 | | | 122 | | | 15 | | | 364 |
Total acquisition and | | | | | | | | | | | | |
integration costs | | $ | 1 | | $ | 122 | | $ | 15 | | $ | 387 |
| | | | | | | | | | | | |
We also invested $19 million and $99 million in capital expenditures related to the CTF Acquisition during the nine months ended September 30, 2017 and 2016, respectively.
PART I. FINANCIAL INFORMATION (Continued)
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(4)(4) Accounts Receivable:
The components of accounts receivable, net are as follows:
| | | | | | |
| | | | | | |
($ in millions) | | September 30, 2017 | | December 31, 2016 |
| | | | | | |
Retail and wholesale | | $ | 768 | | $ | 979 |
Other | | | 81 | | | 90 |
Less: Allowance for doubtful accounts | | | (69) | | | (131) |
Accounts receivable, net | | $ | 780 | | $ | 938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ($ in millions) |
| June 30, 2022 |
| December 31, 2021 |
|
| Retail and wholesale |
| $ | 406 |
| $ | 441 |
|
| Other |
|
| 59 |
|
| 74 |
|
| Less: Allowance for doubtful accounts |
|
| (45) |
|
| (57) |
|
| Accounts receivable, net |
| $ | 420 |
| $ | 458 |
|
|
|
|
|
|
|
|
|
|
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 six months ended June 30, 2022, $6 million for the two months ended June 30, 2021, and $4 million and $14 million for the one and four months ended April 30, 2021, respectively.
In accordance with ASC 326, Frontier performs its calculation to estimate expected credit losses, utilizing rates that are consistent with the Company’s write offs (net of recoveries) because such events affect the entity’s loss given default experience.
Activity in the allowance for credit losses for the six months ended June 30, 2022 was as follows:follows:
|
|
|
|
|
| ($ in millions) |
|
|
| Balance at December 31, 2021 | $ | 57 |
|
| Provision for bad debt |
| 14 |
|
| Amounts charged to revenue |
| 17 |
|
| Write offs charged against the allowance |
| (43) |
|
| Balance at June 30, 2022 | $ | 45 |
|
|
|
|
|
| | | | | | | | | | | | |
| | 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) Property, Plant and Equipment:
Property, plant and equipment, net is as follows:
| | | | | | |
| | | | | | |
($ in millions) | | September 30, 2017 | | December 31, 2016 |
| | | | | | |
Property, plant and equipment | | $ | 26,124 | | $ | 25,541 |
Less: Accumulated depreciation | | | (11,749) | | | (10,639) |
Property, plant and equipment, net | | $ | 14,375 | | $ | 14,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ($ in millions) |
| June 30, 2022 |
| December 31, 2021 |
|
| Property, plant and equipment |
| $ | 11,024 |
| $ | 9,707 |
|
| Less: Accumulated depreciation |
|
| (916) |
|
| (508) |
|
| Property, plant and equipment, net |
| $ | 10,108 |
| $ | 9,199 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense is principally based on the composite group method. Depreciation expense was as follows:
| | | | | | | | | | | | |
| | 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 |
| | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
|
|
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
|
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation expense |
| $ | 211 |
| $ | 127 |
|
| $ | 99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
|
|
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
|
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation expense |
| $ | 414 |
| $ | 127 |
|
| $ | 407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We adopted new estimated remaining useful lives for certain plant assets as of October 1, 2016, asAs a result of an annual independent studyapplying fresh start accounting on the Effective Date, Frontier’s fixed assets were reduced from $13.0 billion to $8.5 billion. For the six months ended June 30, 2022, the decrease in depreciation expense was principally a result of the estimated remaining useful lives of our plant assets, with an insignificant impact to depreciation expense.
reduced asset base following this fresh start fair value adjustment. In 2017,July 2022, we sold certain properties,a property that was subject to leaseback, generating $102approximately $70 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 overproceeds.
During the related lease terms of two years. For the ninesix months ended SeptemberJune 30, 2017, amortization2022, our capital expenditures were $1,088 million. In addition, we had $250 million 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 $52 million, which are included in “Other liabilities”.
PART I. FINANCIAL INFORMATION (Continued)
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(6) Goodwill and Other Intangibles:
The activity in goodwill from January 1, 2017 to September 30, 2017 was as follows:
| | | |
| | | |
($ 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 performcapital expenditures that were received but not paid 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.June 30, 2022.
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 $670 million. (6) Other Intangibles:
Our first and third quarter quantitative assessments indicated that the fair value of the enterprise exceeded its carrying value and, therefore, no indication of impairment existed in either period.
The market multiples approach that we use incorporates significant estimates and assumptions related to the forecasted results for the remainder of the year including revenues, expenses, and the achievement of other cost synergies. Our assessment includes many qualitative factors that require significant judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the need for, or size of, an impairment. Continued declines in our profitability or cash flows or in the sustained, historically low trading prices of our common stock may result in further impairment.
We also considered whether the carrying values of finite-lived intangible assets and property plant and equipment may not be recoverable or whether the carrying value of certain indefinite-lived intangible assets were impaired, noting no additional impairment was present as of September 30, 2017.
PART I. FINANCIAL INFORMATION (Continued)
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The components of other intangibles are as of June 30, 2022 and December 31, 2021 was follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2022 |
| December 31, 2021 |
|
|
|
| Gross Carrying |
| Accumulated |
| Net Carrying |
| Gross Carrying |
| Accumulated |
| Net Carrying |
|
| ($ in millions) |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Customer Relationships - Business |
| $ | 800 |
| $ | (85) |
| $ | 715 |
| $ | 800 |
| $ | (48) |
| $ | 752 |
|
| Customer Relationships - Wholesale |
|
| 3,491 |
|
| (254) |
|
| 3,237 |
|
| 3,491 |
|
| (146) |
|
| 3,345 |
|
| Trademarks & Tradenames |
|
| 150 |
|
| (35) |
|
| 115 |
|
| 150 |
|
| (20) |
|
| 130 |
|
| Total other intangibles |
| $ | 4,441 |
| $ | (374) |
| $ | 4,067 |
| $ | 4,441 |
| $ | (214) |
| $ | 4,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
|
|
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
|
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization expense |
| $ | 79 |
| $ | 52 |
|
| $ | 20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
|
|
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
|
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization expense |
| $ | 160 |
| $ | 52 |
|
| $ | 99 |
|
|
|
|
|
|
|
|
|
|
|
|
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.
| | | | | | | | | | | | |
| | 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) Fair Value of Financial Instruments:
The following table summarizes the carrying amounts and estimated fair values for total long-term debt at SeptemberJune 30, 20172022 and December 31, 2016.2021. For the other financial instruments including cash, short-term investments, 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 total long-term debt is estimated based upon quoted market prices at the reporting date for those financial instruments.
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|
| June 30, 2022 |
| December 31, 2021 |
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|
|
($ in millions) |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
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|
Total debt |
| $ | 8,970 |
| $ | 7,995 |
| $ | 7,777 |
| $ | 7,996 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 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 |
(
(8)
(8) 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 were 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 one and four months ended April 30, 2021 recorded on our Predecessor statements of income was lower than contractual interest of $112 million and $450 million, respectively, because we ceased accruing interest on the Petition Date in accordance with the terms of the Plan and ASC Topic 852.
The activity in our long-term debt from January 1, 2017 through September 30, 2017 is summarized as follows:
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| |
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| For the six months ended
June 30, 2022 | |
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| Principal |
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|
|
|
|
| January 1, |
| Payments |
| New |
| June 30, |
|
| ($ in millions) |
| 2022 |
| and Retirements |
| Borrowings |
| 2022 |
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| |
| | |
|
|
|
|
|
| | |
|
|
| Secured debt issued by Frontier |
| $ | 6,927 |
| $ | (7) |
| $ | 1,200 |
| $ | 8,120 |
|
| Secured debt issued by subsidiaries |
|
| 100 |
|
| - |
|
| - |
|
| 100 |
|
| Unsecured debt issued by subsidiaries |
|
| 750 |
|
| - |
|
| - |
|
| 750 |
|
| Principal outstanding |
| $ | 7,777 |
| $ | (7) |
| $ | 1,200 |
| $ | 8,970 |
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| |
| | |
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|
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| | | |
|
| Less: Debt Issuance Costs |
|
| (13) |
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| |
| (30) |
|
| Less: Current Portion |
|
| (15) |
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|
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| |
| (15) |
|
| Plus: Unamortized fair value adjustments (1) |
|
| 219 |
|
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|
|
|
| 205 |
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| Total Long-term debt |
| $ | 7,968 |
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|
|
| | $ | 9,130 |
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| |
| | |
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| | | |
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| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | 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 | | | 8 | | | (1) | | | - | | | 7 | | 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 | | |
| | | | | | | | | | | | | | |
* Interest rate includes amortization(1)Upon emergence, we adjusted the carrying value of our debt to fair value. The adjustment consisted of the elimination of the existing unamortized debt issuance costs and debt premiums or discounts.unamortized discounts and recording a balance of $236 million as a fair value adjustment. The fair value accounting adjustment is being amortized into interest rates at September 30, 2017 represent a weighted average of multiple issuances.expense using the effective interest method.
Additional information regarding our seniorsecured and unsecured total long-term debt senior secured debtas of June 30, 2022 and subsidiary debtDecember 31, 2021 is as follows:
| | | | | | | | | | |
| | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | | | | | | | | | |
| | Principal | | Interest | | Principal | | Interest |
($ 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 | | | 2 | | 6.800% | | | 2 | | 6.800% |
1/15/2027 | | | 346 | | 7.875% | | | 346 | | 7.875% |
8/15/2031 | | | 945 | | 9.000% | | | 945 | | 9.000% |
10/1/2034 | | | 1 | | 7.680% | | | 1 | | 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) |
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|
| June 30, 2022 |
|
| December 31, 2021 |
|
|
|
| Principal |
| Interest |
|
| Principal |
| Interest |
|
| ($ in millions) |
| Outstanding |
| Rate |
|
| Outstanding |
| Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Secured debt issued by Frontier |
|
|
|
|
|
|
|
|
|
|
|
|
| Term loan due 10/8/2027 |
| $ | 1,457 |
| 4.813% (Variable) |
|
| $ | 1,464 |
| 4.500% (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% |
|
| First lien notes due 5/12/2030 |
|
| 1,200 |
| 8.750% |
|
|
| - |
| n/a |
|
| Second lien notes due 11/1/2029 |
|
| 750 |
| 5.875% |
|
|
| 750 |
| 5.875% |
|
| Second lien notes due 5/1/2029 |
|
| 1,000 |
| 6.750% |
|
|
| 1,000 |
| 6.750% |
|
| Second lien notes due 1/15/2030 |
|
| 1,000 |
| 6.000% |
|
|
| 1,000 |
| 6.000% |
|
| IDRB due 5/1/2030 |
|
| 13 |
| 6.200% |
|
|
| 13 |
| 6.200% |
|
| Secured debt issued by Frontier |
|
| 8,120 |
|
|
|
|
| 6,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Secured debt issued by subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
| Debentures due 11/15/2031 |
|
| 100 |
| 8.500% |
|
|
| 100 |
| 8.500% |
|
| Secured debt issued by subsidiaries |
|
| 100 |
|
|
|
|
| 100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Principal outstanding |
| $ | 8,970 |
| 6.163% (1) |
|
| $ | 7,777 |
| 5.702% (1) |
|
|
|
|
|
|
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|
|
|
|
|
(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.
Credit Facilities and Term Loans
PART I. FINANCIAL INFORMATION (Continued)
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In September 2017, Frontier used proceeds from Term Loan B (see definitionSummaries of our various credit and note discussion below) to retire $24 million of 8.500% Notes due 2020, $10 million of 9.250% Notes due 2021, $6 million of 7.125% Notes due 2019,debt agreements, including our credit agreements 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 theindentures for our senior secured first lien notes and unamortized original issuance costs.senior secured second lien notes, are contained in our Annual Report on Form 10-K. The summaries below and in our Form 10-K do not purport to be complete and are qualified in their entirety by reference to each agreement filed as an Exhibit to our Annual Report on Form 10-K.
Revolving Facility
On February 27, 2017,May 12, 2022, Frontier entered into an amendment (“Amendment No. 2”) to its Revolving Facility. The Amendment, among other things, increased the Revolving Facility by an additional $275 million, to 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 itstotal of $900 million in aggregate principal amount of revolving credit agreement, dated as of June 2, 2014,commitments, and its term loan credit agreement, dated as of August 12, 2015. Underprovided that the JPM Credit Agreement, as furtherRevolving Facility be amended on June 15, 2017 by Increase Joinder No.1 (as so amended, the JPM Credit Agreement), Frontier hasto reflect Secured Overnight Financing Rate “SOFR” based interest rates (including a $1,625customary spread adjustment).
The $900 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,Revolving Facility will be accelerated inavailable on a revolving basis until April 30, 2025.
At Frontier’s election, 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 AgreementRevolving Facility is based on margins over the Base Rate (as defined in the JPM Credit Agreement)alternate base rate 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).SOFR. The interest rate onmargin with respect to any SOFR loan under the Term Loan A as of September 30, 2017 was LIBOR plus 2.75%. InterestExit Revolving Facility is 3.50% or 2.50% with respect to any alternate base rate margins onloans, with a 0% SOFR floor.
Subject to customary exceptions and thresholds, 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 AgreementRevolving 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, which same assets also secure the CoBank Credit AgreementsFirst Lien Notes. The Revolving Facility is being made in quarterly installments ($9 million, with respect toguaranteed by the 2014 CoBank Credit Agreement, and $8 million, with respect tosame subsidiaries that guarantee the 2016 CoBank Credit Agreement), in each case with the remaining outstanding principal balance to be repaid on the applicable maturity date. Borrowings under each of the CoBank Credit Agreements bear interest based on the margins over the Base Rate (as defined in the applicable CoBank Credit Agreement) or over LIBOR, at the election of Frontier.
AsFirst Lien Notes. After giving effect to $133 million of September 30, 2017, we were in compliance with allletters of our indenture and credit facility covenants.
Our scheduled principal payments are as followsoutstanding as of SeptemberJune 30, 2017:
| | | |
| | | |
| | Principal |
($ in millions) | | Payments |
| | | |
2017 (remaining three months) | | $ | 42 |
2018 | | $ | 743 |
2019 | | $ | 828 |
2020 | | $ | 1,132 |
2021 | | $ | 2,558 |
2022 | | $ | 2,703 |
Thereafter | | $ | 10,010 |
2022, the Borrower has $767 million of available borrowing capacity under the Revolving Facility.
(9) 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 of $46related 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 six month period ended June 30, 2022, we incurred $84 million in connection withrestructuring charges and other costs consisting of $44 million of lease impairment costs from the strategic exit of certain facilities, $32 million of severance and employee costs resulting from workforce reductions, are includedand $8 million of costs related to other restructuring activities. Of the $32 million in “Restructuringseverance and employee costs, and other charges” in our consolidated statement of operations for the nine months ended September 30, 2017. Duringapproximately $26 million related to the second quarter of 2017, Frontier sold2022, as a result of larger workforce reductions.
As part of the Company's cost reduction strategy, certain real estate leases will not be retained, or will be marketed for sublease. The Company evaluated the related right-of-use assets and other lease related assets for impairment under ASC 360. In connection with this analysis, the Company reassessed its Frontier Secure Strategic Partnerships business at a lossleased real estate asset groups and estimated the fair value of the office space to be subleased under current market conditions. Where the carrying values of individual asset groups exceeded their fair values, an impairment charge was recognized for the difference.
During the four months ended April 30, 2021, we incurred $7 million of severance and employee costs resulting from workforce reductions. During the two months ended June 30, 2021, we incurred $11 million in expenses consisting of $2 million of severance and employee costs resulting from workforce reductions and $9 million which is also included in restructuring costs and other charges for the nine months ended September 30, 2017.of professional fees related to our balance sheet restructuring.
The following is a summary of the changes in the liabilities established for restructuring programs at September 30, 2017:
and other related programs:
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|
|
| ($ in millions) |
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 20172022 |
| $ | 47 7 |
|
Severance costs
| Severance expense |
| 46
| 32 |
|
| Other costs |
|
| 8 |
|
| Cash payments during the period |
|
| (81)(28) |
|
Balance, September 30, 2017
| Balance at June 30, 2022 | $
| 12 | |
| $ | 19 | |
|
(10) Investment and Other Income:
(10) Income Taxes:
The following is a reconciliationsummary of the provision for income taxes computed at the federal statutory rate to income taxes computed at the effective rate: components of Investment and Other Income:
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|
|
|
|
| Successor |
|
| Successor |
|
| Predecessor |
|
|
|
| For the three months ended June 30, |
|
| For the two months ended June 30, |
|
| For the one month ended April 30, |
|
| ($ in millions) |
| 2022 |
|
| 2021 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and dividend income |
| $ | 6 |
|
| $ | - |
|
| $ | - |
|
| Pension benefit |
|
| 25 |
|
|
| 13 |
|
|
| 2 |
|
| OPEB costs |
|
| (5) |
|
|
| (17) |
|
|
| (1) |
|
| OPEB remeasurement gain |
|
| 96 |
|
|
| - |
|
|
| - |
|
| All other, net |
|
| - |
|
|
| 2 |
|
|
| (2) |
|
| Total investment and other income (loss), net |
| $ | 122 |
|
| $ | (2) |
|
| $ | (1) |
|
|
|
|
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|
|
|
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|
|
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 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 | % |
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|
|
|
|
|
|
|
|
|
| Successor |
|
| Successor |
|
| Predecessor |
|
|
|
| For the six months ended June 30, |
|
| For the two months ended June 30, |
|
| For the four months ended April 30, |
|
| ($ in millions) |
| 2022 |
|
| 2021 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and dividend income |
| $ | 8 |
|
| $ | - |
|
| $ | - |
|
| Pension benefit |
|
| 50 |
|
|
| 13 |
|
|
| 6 |
|
| OPEB costs |
|
| (8) |
|
|
| (17) |
|
|
| (4) |
|
| OPEB remeasurement gain |
|
| 150 |
|
|
| - |
|
|
| - |
|
| All other, net |
|
| (1) |
|
|
| 2 |
|
|
| (1) |
|
| Total investment and other income (loss), net |
| $ | 199 |
|
| $ | (2) |
|
| $ | 1 |
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|
|
|
|
|
|
|
|
|
|
Income taxes for the nine months ended September 30, 2017 includes the federal tax impact of $107 million related to the goodwill impairment recorded during the second quarter of 2017.
Income taxes for the nine months ended September 30, 2017 includes the impact of $2 million 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 sheets as of September 30, 2017 and December 31, 2016, respectively.
DuringIn the first nine monthshalf of 2017, we received net state2022, Frontier amended the medical coverage for certain postretirement benefit plans, primarily due to discount rate changes, which resulted in remeasurement gains of $150 million. Refer to Note 15 for further details.
Pension and OPEB benefit (costs) consist of interest income tax refunds(loss), expected return on plan assets, amortization of $4 million. In October 2017, we received federal tax refundsprior service costs (credit) and recognition of $48 million.actuarial gain (loss).
(11) Net Loss Per Share:
All share and per share amounts in the tables below have been retroactively adjusted for all periods presented to give effect to the reverse stock split. See Note 1 – Summary of Significant Accounting Policies for additional details.
The reconciliation of the net loss per share calculation is as follows:
| | | | | | | | | | | |
| | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| September 30, | | September 30, |
| | | | | | | | | | | |
($ 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) |
In calculating diluted net loss per common share for the three and nine months ended September 30, 2016, the effect of all common stock equivalents is excluded from the computation as the effect would be antidilutive.
Stock Options
For the three and nine months ended September 30, 2017 and 2016, previously granted options to purchase 2,664 shares, issuable under employee compensation plans were excluded from the computation of diluted earnings (loss) per share (EPS) for those periods because the exercise prices were greater than the average market price of our common stock and, therefore, the effect would be antidilutive.
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 three months ended September 30, 2017 and 2016 and the nine months ended September 30, 2016 because their inclusion would have an antidilutive effect. Compensation costs associated with the issuance of stock units were ($4) million for the nine months ended September 30, 2017. There were no compensation costs associated with the issuance of stock units for the nine months ended September 30, 2016.
Mandatory Convertible Preferred Stock
The impact of the common share equivalents associated with approximately 19,250,000 shares of Series A Preferred stock were not included in the diluted EPS calculation as of September 30, 2017 and 2016, as their impact was antidilutive.
(12) Stock Plans:
All share and per share amounts in the tables below have been retroactively adjusted for
Upon emergence, 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 sevenoutstanding stock-based compensation plans under which grantsof Old Frontier were madeterminated and, awards remained outstanding. No further awards may be granted under sixin accordance with the Plan, the form of the plans: the 1996 EquityFrontier Communications Parent, Inc. 2021 Management Incentive Plan (the 1996 EIP),“2021 Incentive Plan”) was approved and adopted by the Amended and Restated 2000 EquityBoard. The Incentive Plan (the 2000 EIP),permits stock-based awards to be made to employees, directors, or consultants of the 2009 EquityCompany or its affiliates, as determined by the Compensation and Human Capital Committee of the Board. Under the 2021 Incentive Plan, (the 2009 EIP), the 2013 Equity Incentive Plan (the 2013 EIP), the Deferred Fee Plan and the Directors’ Equity Plan. At September15,600,000 shares of common stock have been reserved for issuance. As of June 30, 2017, there2022, unvested awards relating to approximately 2,327,000 shares were approximately 5,667,000 shares authorized for grant and approximately 4,381,000 shares available for grantoutstanding 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)long-term equityaward program or “Emergence LTI Program”. 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.
PART I. FINANCIAL INFORMATION (Continued)
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Restricted Stock
The following summary presents information regarding unvested restricted stock as of September 30, 2017 and changes during the nine months then ended with regard to restricted stock granted under the 2013 EIP and the 2017 EIP2021 Incentive Plan:
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|
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|
|
| 2021 Incentive Plan |
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
| Number of |
| Grant Date |
| Aggregate |
|
|
|
| Shares |
| Fair Value |
| Fair Value |
|
|
|
| (in thousands) |
| (per share) |
| (in millions) |
|
| Balance at January 1, 2022 |
| 2,483 |
| $ | 28.67 |
| $ | 72 |
|
| Restricted stock granted |
| 941 |
| $ | 25.87 |
| $ | 25 |
|
| Restricted stock vested |
| (817) |
| $ | 25.69 |
| $ | (22) |
|
| Restricted stock forfeited |
| (92) |
| $ | 25.91 |
|
| |
|
| Balance at June 30, 2022 |
| 2,515 |
| $ | 25.84 |
| $ | 67 |
|
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| | | | | | | | |
| | | | | | | | |
| | | | 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 | | $ | 5 |
Restricted stock vested | | (220) | | $ | 79.78 | | $ | (3) |
Restricted stock forfeited | | (119) | | $ | 61.21 | | | |
Balance at September 30, 2017 | | 664 | | $ | 59.64 | | $ | 8 |
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 marketclosing 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 eachgrant. The non-vested restricted stock grant is estimated basedunits granted in 2021 generally vest, and are expensed, on a ratable basis over three years from the closing price of a share of our common stock on thegrant date of the grant.award. Total remaining unrecognizedcompensation cost associated with unvested restricted stock awards that is deferred at SeptemberJune 30, 20172022 was $26$62 million and the weighted average vesting period over which this cost is expected to be recognized is approximately 1.52 years.
Shares of restricted stock granted during the first nine months of 2016 totaled 375,133. The total fair value of shares of restricted stock granted and vested at September 30, 2016 was approximately $23 million and $15 million, respectively. The total fair value of unvested restricted stock at September 30, 2016 was $37 million. The weighted average grant date fair value of restricted shares granted during the nine months ended September 30, 2016 was $78.60 per share.
We have granted restricted stock awards to employees in the form of our common stock. None of the restricted stock awards may be sold, assigned, pledged, or otherwise transferred, voluntarily or involuntarily, by the employees until the restrictions lapse, subject to limited exceptions. The restrictions are time-based. Compensation expense, including compensation related to non-employee directors, recognized in “Selling, general and administrative expenses”, of $19 million for the six month-period ended June 30, 2022, has been recorded in connection with restricted stock.
Performance Stock Units
Under the 2021 Incentive Plan, a target number of performance units are awarded to each participant with respect to the three-year performance period (a “Measurement Period”). The performance metrics under the 2021 and 2022 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 relative total shareholder return (“TSR”) modifier, which is based on Frontier’s total return to stockholders over the Measurement Period relative to the S&P 400 Mid Cap Index. Each performance metric is weighted 33.3%, and targets for each metric are set for each of the three years during the Measurement Period. Achievement of the metrics will be measured separately, and the number of awards earned will be determined based on actual performance relative to the targets of each performance metric, plus the effect of the TSR modifier. Achievement is measured on a cumulative basis for each performance metric individually at the end of the three-year Measurement Period. The payout of the 2021 PSUs can range from 0% to a maximum award payout of 300% of the target units. The payout of the 2022 PSUs
