UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

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

For the transition period from _________to__________

Commission file number: 001-11001

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FRONTIER COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		06-0619596
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

401 Merritt 7
Norwalk, Connecticut		06851
(Address of principal executive offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Ticker Symbol	Name of each exchange on which registered	~~Ticker Symbol~~
Common Stock, par value $0.25 per share	⁽¹⁾	~~The NASDAQ Stock Market LLC~~	FTR	None⁽¹⁾
Preferred Stock Purchase Rights		N/A	None

(1)On April 29, 2020, the NASDAQ Stock Market filed a Form 25 with the Securities and Exchange Commission to delist the common stock, par value $0.25 per share, of Frontier Communications Corporation (the “common stock”) from the NASDAQ Global Select Market. The delisting will be effective 10 days after the Form 25 was filed. The deregistration of the common stock under Section 12(b) of the Securities Exchange Act of 1934 will be effective 90 days, or such shorter period as the Securities and Exchange Commission may determine, after filing of the Form 25. Following deregistration of the common stock under Section 12(b) of the Securities Exchange Act of 1934, the common stock shall remain registered under Section 12(g) of the Securities Exchange Act of 1934. Trading of Frontier’s common stock now occurs on the OTC Pink market under the symbol “FTRCQ.”

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨

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

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

Smaller reporting company ¨x Emerging growth company ¨

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

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

Yes ¨ No x

The number of shares outstanding of the registrant’s Common Stock as of ~~November~~May 1, ~~2019~~2020 was ~~105,370,000.~~104,988,000.

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Table of Contents


	Page
Part I. Financial Information (Unaudited)

Item 1. Financial Statements

Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	2

Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	3

Consolidated Statements of Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	4

Consolidated Statements of Equity (Deficit) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	5

Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	6

Notes to Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3837

Item 3. Quantitative and Qualitative Disclosures about Market Risk	5460

Item 4. Controls and Procedures	5561

Part II. Other Information

Item 1. Legal Proceedings	5662

Item 1A. Risk Factors	5662

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5763

Item 6. Exhibits	5864

Signature	5965

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)
September 30, 2019
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
683
$
354
Accounts receivable, less allowances of $91 and $105, respectively
654
723
Contract acquisition costs
105
107
Prepaid expenses
110
86
Assets held for sale
1,402
-
Income taxes and other current assets
55
60
Total current assets
3,009
1,330
Property, plant and equipment, net
12,973
14,187
Goodwill
-
6,383
Other intangibles, net
1,120
1,494
Other assets
459
265
Total assets
$
17,561
$
23,659
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Long-term debt due within one year
$
994
$
814
Accounts payable
453
495
Advanced billings
227
256
Accrued other taxes
213
182
Accrued interest
294
381
Pension and other postretirement benefits
39
39
Liabilities held for sale
134
-
Other current liabilities
386
394
Total current liabilities
2,740
2,561
Deferred income taxes
580
1,109
Pension and other postretirement benefits
1,641
1,750
Other liabilities
398
281
Long-term debt
16,305
16,358
Equity (Deficit):
Common stock, $0.25 par value (175,000 authorized shares,
106,025 issued, and 105,370 and 105,536 outstanding
at September 30, 2019 and December 31, 2018, respectively)
27
27
Additional paid-in capital
4,810
4,802
Accumulated deficit
(8,411)
(2,752)
Accumulated other comprehensive loss, net of tax
(517)
(463)
Treasury common stock
(12)
(14)
Total equity (deficit)
(4,103)
1,600
Total liabilities and equity (deficit)
$
17,561
$
23,659



	(Unaudited)
	March 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	941	$	760
Accounts receivable, less allowances of $100 and $120, respectively		596		629
Contract acquisition costs		105		105
Prepaid expenses		98		89
Assets held for sale		1,406		1,401
Income taxes and other current assets		56		53
Total current assets		3,202		3,037

Property, plant and equipment, net		12,890		12,963
Other intangibles, net		921		1,020
Other assets		475		468
Total assets	$	17,488	$	17,488

LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Long-term debt due within one year	$	17,306	$	994
Accounts payable		357		437
Advanced billings		221		219
Accrued other taxes		209		206
Accrued interest		619		407
Pension and other postretirement benefits		43		43
Liabilities held for sale		115		123
Other current liabilities		359		375
Total current liabilities		19,229		2,804

Deferred income taxes		477		462
Pension and other postretirement benefits		1,864		1,896
Other liabilities		411		412
Long-term debt		-		16,308

Equity (Deficit):
Common stock, $0.25 par value (175,000 authorized shares,
106,025 issued, and 104,989 and 105,131 outstanding
at March 31, 2020 and December 31, 2019, respectively)		27		27
Additional paid-in capital		4,816		4,815
Accumulated deficit		(8,759)		(8,573)
Accumulated other comprehensive loss, net of tax		(564)		(650)
Treasury common stock		(13)		(13)
Total equity (deficit)		(4,493)		(4,394)
Total liabilities and equity (deficit)	$	17,488	$	17,488

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

‎

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018

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

(Unaudited)

For the three months ended
For the nine months ended
September 30,
September 30,
2019
2018
2019
2018
Revenue
$
1,997
$
2,126
$
6,165
$
6,487
Operating expenses:
Network access expenses
307
353
963
1,094
Network related expenses
464
476
1,365
1,437
Selling, general and administrative expenses
445
445
1,346
1,374
Depreciation and amortization
422
471
1,360
1,462
Goodwill impairment
276
400
5,725
400
Loss on disposal of Northwest Operations
30
-
414
-
Restructuring costs and other charges
27
14
86
20
Total operating expenses
1,971
2,159
11,259
5,787
Operating income (loss)
26
(33)
(5,094)
700
Investment and other income (loss), net
(10)
3
(28)
16
Pension settlement costs
-
9
-
34
Gain (loss) on extinguishment of debt
-
(2)
(20)
31
Interest expense
382
389
1,144
1,148
Loss before income taxes
(366)
(430)
(6,286)
(435)
Income tax benefit
(21)
(4)
(537)
(11)
Net loss
(345)
(426)
(5,749)
(424)
Less: Dividends on preferred stock
-
-
-
107
Net loss attributable to
Frontier common shareholders
$
(345)
$
(426)
$
(5,749)
$
(531)
Basic and diluted net loss per share
attributable to Frontier common shareholders
$
(3.31)
$
(4.11)
$
(55.26)
$
(6.09)
Total weighted average shares outstanding
- basic and diluted
104,135
103,665
104,031
87,138



	For the three months ended
	March 31,

	2020		2019

Revenue	$	1,933	$	2,101

Operating expenses:
Network access expenses		286		338
Network related expenses		444		456
Selling, general and administrative expenses		444		456
Depreciation and amortization		415		484
Loss on disposal of Northwest Operations		24		-
Restructuring costs and other charges		48		28
Total operating expenses		1,661		1,762

Operating income		272		339

Investment and other income (loss), net		5		(9)
Pension settlement costs		103		-
Loss on extinguishment of debt		-		(20)
Interest expense		383		379

Loss before income taxes		(209)		(69)
Income tax (benefit) expense		(23)		18

Net loss		(186)		(87)

Basic and diluted net loss per share
attributable to Frontier common shareholders	$	(1.78)	$	(0.84)


Total weighted average shares outstanding
- basic and diluted		104,363		103,885

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

‎

PART I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018

($ in millions)

(Unaudited)

For the three months ended
For the nine months ended
September 30,
September 30,
2019
2018
2019
2018
Net loss
$
(345)
$
(426)
$
(5,749)
$
(424)
Other comprehensive income (loss), net of tax
8
(34)
25
36
Comprehensive loss
$
(337)
$
(460)
$
(5,724)
$
(388)



	For the three months ended
	March 31,

	2020		2019

Net loss	$	(186)	$	(87)
Other comprehensive income, net of tax		86		8

Comprehensive loss	$	(100)	$	(79)

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

‎

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018

($ in millions and shares in thousands)

(Unaudited)




																									Accumulated
																					Additional				Other		Treasury			Total
																		Common Stock			Paid-In		Accumulated		Comprehensive		Common Stock			Equity
																		Shares	Amount		Capital		Deficit		Loss		Shares	Amount		(Deficit)
Balance at January 1, 2020																		106,025	$	27	$	4,815	$	(8,573)	$	(650)	(894)	$	(13)	$	(4,394)
Stock plans																		-		-		1		-		-	(143)		-		1
Net loss																		-		-		-		(186)		-	-		-		(186)
Other comprehensive
income, net of tax																		-		-		-		-		86	-		-		86
Balance at March 31, 2020																		106,025	$	27	$	4,816	$	(8,759)	$	(564)	(1,037)	$	(13)	$	(4,493)


	For the three and nine months ended September 30, 2019
											Accumulated														Accumulated
							Additional				Other		Treasury			Total					Additional				Other		Treasury
	Preferred Stock			Common Stock			Paid-In		Accumulated		Comprehensive		Common Stock			Equity		Common Stock			Paid-In		Accumulated		Comprehensive		Common Stock			Total
	Shares	Amount		Shares	Amount		Capital		Deficit		Loss		Shares	Amount		(Deficit)		Shares	Amount		Capital		Deficit		Loss		Shares	Amount		Equity
Balance at January 1, 2019	-	$	-	106,025	$	27	$	4,802	$	(2,752)	$	(463)	(489)	$	(14)	$	1,600	106,025	$	27	$	4,802	$	(2,752)	$	(463)	(489)	$	(14)	$	1,600
ASC 842 transition
adjustment	-		-	-		-		-		11		-	-		-		11
adjustment, net of tax																		-		-		-		11		-	-		-		11
Impact of adoption of
ASU 2018-02	-		-	-		-		-		79		(79)	-		-		-	-		-		-		79		(79)	-		-		-
Stock plans	-		-	-		-		3		-		-	(229)		-		3	-		-		3		-		-	(229)		-		3
Net loss	-		-	-		-		-		(87)		-	-		-		(87)	-		-		-		(87)		-	-		-		(87)
Other comprehensive
income, net of tax	-		-	-		-		-		-		8	-		-		8	-		-		-		-		8	-		-		8
Balance at March 31, 2019	-		-	106,025		27		4,805		(2,749)		(534)	(718)		(14)		1,535	106,025	$	27	$	4,805	$	(2,749)	$	(534)	(718)	$	(14)	$	1,535
Stock plans	-		-	-		-		-		-		-	68		2		2
Net loss	-		-	-		-		-		(5,317)		-	-		-		(5,317)
Other comprehensive
income, net of tax	-		-	-		-		-		-		9	-		-		9
Balance at June 30, 2019	-		-	106,025		27		4,805		(8,066)		(525)	(650)		(12)		(3,771)
Stock plans	-		-	-		-		5		-		-	(5)		-		5
Net loss	-		-	-		-		-		(345)		-	-		-		(345)
Other comprehensive
income, net of tax	-		-	-		-		-		-		8	-		-		8
Balance at
September 30, 2019	-	$	-	106,025	$	27	$	4,810	$	(8,411)	$	(517)	(655)	$	(12)	$	(4,103)


	For the three and nine months ended September 30, 2018
											Accumulated
							Additional				Other		Treasury
	Preferred Stock			Common Stock			Paid-In		Accumulated		Comprehensive		Common Stock			Total
	Shares	Amount		Shares	Amount		Capital		Deficit		Loss		Shares	Amount		Equity
Balance at January 1, 2018	19,250	$	-	79,532	$	20	$	5,034	$	(2,263)	$	(366)	(1,091)	$	(151)	$	2,274
Impact of adoption of
ASC 606	-		-	-		-		-		154		-	-		-		154
Stock plans	-		-	835		-		(134)		-		-	975		136		2
Dividends on
preferred stock
($5.56 per share)	-		-	-		-		(53)		-		-	-		-		(53)
Net income	-		-	-		-		-		20		-	-		-		20
Other comprehensive
income, net of tax	-		-	-		-		-		-		(1)	-		-		(1)
Balance at March 31, 2018	19,250		-	80,367		20		4,847		(2,089)		(367)	(116)		(15)		2,396
Conversion of
preferred stock	(19,250)		-	25,529		7		(7)		-		-	-		-		-
Stock plans	-		-	129		-		2		-		-	(99)		4		6
Dividends on
preferred stock
($5.56 per share)	-		-	-		-		(54)		-		-	-		-		(54)
Net income	-		-	-		-		-		(18)		-	-		-		(18)
Other comprehensive
income, net of tax	-		-	-		-		-		-		71	-		-		71
Balance at June 30, 2018	-		-	106,025		27		4,788		(2,107)		(296)	(215)		(11)		2,401
Stock plans	-		-	-		-		5		-		-	(257)		(3)		2
Net loss	-		-	-		-		-		(426)		-	-		-		(426)
Other comprehensive
loss, net of tax	-		-	-		-		-		-		(34)	-		-		(34)
Balance at
September 30, 2018	-	$	-	106,025	$	27	$	4,793	$	(2,533)	$	(330)	(472)	$	(14)	$	1,943

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

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2020 AND 2019 ~~AND 2018~~

($ in millions)

(Unaudited)

For the nine months ended September 30,
2019
2018
Cash flows provided from (used by) operating activities:
Net loss
$
(5,749)
$
(424)
Adjustments to reconcile net loss to net cash provided from (used by)
operating activities:
Depreciation and amortization
1,360
1,462
Loss (gain) on extinguishment of debt
20
(31)
Pension settlement costs
-
34
Stock-based compensation expense
10
14
Amortization of deferred financing costs
23
26
Other adjustments
2
(24)
Deferred income taxes
(541)
(12)
Goodwill impairment
5,725
400
Loss on disposal of Northwest Operations
414
-
Change in accounts receivable
17
43
Change in accounts payable and other liabilities
(153)
(239)
Change in prepaid expenses, income taxes and other assets
(25)
(40)
Net cash provided from operating activities
1,103
1,209
Cash flows provided from (used by) investing activities:
Capital expenditures
(898)
(947)
Proceeds on sale of assets
76
11
Other
2
4
Net cash used by investing activities
(820)
(932)
Cash flows provided from (used by) financing activities:
Long-term debt payments
(2,003)
(1,997)
Proceeds from long-term debt borrowings
1,650
1,840
Proceeds from revolving debt
949
-
Repayment of revolving debt
(475)
-
Financing costs paid
(44)
(43)
Premium paid to retire debt
-
(17)
Dividends paid on preferred stock
-
(107)
Finance lease obligation payments
(26)
(30)
Other
(5)
(11)
Net cash provided from (used by) financing activities
46
(365)
Increase (Decrease) in cash, cash equivalents, and restricted cash
329
(88)
Cash, cash equivalents, and restricted cash at January 1,
404
376
Cash, cash equivalents, and restricted cash at September 30,
$
733
$
288
Supplemental cash flow information:
Cash paid during the period for:
Interest
$
1,208
$
1,266
Income tax payments, net
$
5
$
5



	For the three months ended March 31,
	2020		2019

Cash flows provided from (used by) operating activities:
Net loss	$	(186)	$	(87)
Adjustments to reconcile net loss to net cash provided from (used by)
operating activities:
Depreciation and amortization		415		484
Loss on extinguishment of debt		-		20
Pension settlement costs		103		-
Stock-based compensation expense		1		3
Amortization of deferred financing costs		8		9
Other adjustments		1		-
Deferred income taxes		(30)		16
Loss on disposal of Northwest Operations		24		-
Change in accounts receivable		29		7
Change in accounts payable and other liabilities		110		(157)
Change in prepaid expenses, income taxes and other assets		2		(13)
Net cash provided from operating activities		477		282

Cash flows provided from (used by) investing activities:
Capital expenditures		(286)		(305)
Proceeds on sale of assets		2		74
Other		2		-
Net cash used by investing activities		(282)		(231)

Cash flows provided from (used by) financing activities:
Long-term debt principle payments		(5)		(1,995)
Proceeds from long-term debt borrowings		-		1,650
Proceeds from revolving debt		-		375
Repayment of revolving debt		-		(275)
Financing costs paid		-		(30)
Finance lease obligation payments		(8)		(8)
Other		-		(3)
Net cash used by financing activities		(13)		(286)

Increase (Decrease) in cash, cash equivalents, and restricted cash		182		(235)
Cash, cash equivalents, and restricted cash at January 1,		809		404

Cash, cash equivalents, and restricted cash at March 31,	$	991	$	169

Supplemental cash flow information:
Cash paid during the period for:
Interest	$	163	$	525
Income tax payments, net	$	1	$	-

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

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

(1) Summary of Significant Accounting Policies:

a)Basis of Presentation and Use of Estimates:

Frontier Communications Corporation and its subsidiaries are referred to as “we,” “us,” “our,” “Frontier,” or the “Company” in this report. Our interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Certain reclassifications of amounts previously reported have been made to conform to the current presentation. 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 loss and cash flows for any interim periods are not necessarily indicative of results that may be expected for the full year. For our interim financial statements as of and for the period ended ~~September 30, 2019,~~March 31, 2020, 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).

The preparation of our interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the disclosure of contingent assets and liabilities, and (iii) the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Estimates and judgments are used when accounting for the allowance for doubtful accounts, asset impairments, indefinite-lived intangibles, depreciation and amortization, income taxes, and pension and other postretirement benefits, among others.

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

b)~~Accounting Changes:~~Going Concern

Except for the adoption of the new lease accounting standard and required reclassification of certain tax effects related to the Tax Cuts and Jobs Act, Frontier has consistently applied the accounting policies to all periods presented in theseOur interim unaudited consolidated financial ~~statements. Refer~~statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the normal course of business. In connection with the preparation of our interim unaudited consolidated financial statements, we conducted an evaluation as to ~~Notes 2, 11,~~whether there were conditions and 16events, considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue as a going concern. As reflected in our consolidated financial statements, the Company had cash and cash equivalents of $941 million and an accumulated deficit of $8,759 million as of March 31, 2020. The Company also had operating income of $272 million and a net loss of $186 million for ~~additional discussion.~~the three months ended March 31, 2020.

On April 14, 2020, Frontier Communications Corporation and its subsidiaries (collectively, the Company Parties) entered into a Restructuring Support Agreement (the Restructuring Support Agreement) with certain of its noteholders (the Consenting Noteholders). The Restructuring Support Agreement contemplates agreed-upon terms for a pre-arranged financial restructuring plan (the Plan) that leaves unimpaired all general unsecured creditors and holders of secured debt and subsidiary debt.

Under the Restructuring Support Agreement, the Consenting Noteholders have agreed, subject to certain terms and conditions, to support a financial restructuring (the Restructuring) of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to the Plan to be filed in cases commenced under chapter 11 (the Chapter 11 Cases) of the United States Bankruptcy Code (the Bankruptcy Code).

To implement the Plan, on April 14, 2020 (the Petition Date), the Company Parties filed the Chapter 11 Cases in the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). Each Company Party will continue to operate its business as a “debtor in possession” under the jurisdiction of

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476 (RDD).

Our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the Bankruptcy Court’s approval, implement the Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet our obligations and operating needs. As a result of risks and uncertainties related to (i) the Company’s ability to obtain requisite support for the Plan from various stakeholders, and (ii) the effects of disruption from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, together with the Company’s recurring losses from operations and accumulated deficit, substantial doubt exists regarding our ability to continue as a going concern. For detailed discussion about the Restructuring Support Agreement and the Plan, refer to note 18.

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

c)Impact of COVID-19

On March 11, 2020, the World Health Organization declared the highly contagious and lethal corona virus outbreak a global pandemic (COVID-19) and recommended containment and other mitigation measures worldwide to lessen the transmission of COVID-19. In the first quarter of 2020, governments from around the world, including the United States federal government as well as state and local governments have reacted to this public health crisis, imposing travel restrictions and restrictions on large gatherings of people, which includes school and non-essential business closures. The rapid spread of COVID-19 and the drastic responses being taken to curb its spread have resulted in a significant negative impact to the global and domestic economies, which will increase the longer these limitations are in place. In an effort to reduce the economic impacts of COVID-19, the United States federal government has responded with multiple stimulus bills, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the largest economic stimulus legislation in American history. Despite these efforts, the short-term and long-term impacts of COVID-19 cannot be determined.

With more people staying at home and an increased reliance on broadband and telephone networks, the FCC issued the Keep Americans Connected Pledge on March 11, 2020, which provides for telecommunication providers, including Frontier, to not terminate service and to waive any late payment fees for 60 days for certain customers due to economic circumstances they are facing related to COVID-19 as well as making WIFI hotspots available to all Americans who need them. In addition, we have seen a number of the states we operate in issue executive orders that impact our business, including prohibiting the disconnection of services for customers for the length of the state of emergency. State and federal governments continue to ask companies to aid in pandemic response. Given the unprecedented and evolving nature of the pandemic and the swift moving response of multiple levels of government as well as the uncertainty of funding available for services provided, the impact of these changes and potential changes on the Company are unknown at this time.

In addition to committing to the Keep Americans Connected Pledge, Frontier’s response to COVID-19 includes limiting our product offerings to those that do not require a field service employee to enter a customer’s home and directing most non-field service employees to work from home. Thus far only a few of Frontier’s employees have been tested positive for COVID-19. Through March 31, 2020, we had not experienced any disruptions in our supply chain; however, some of our business partners, particularly

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

those operating outside of the United States, have been more greatly impacted which has affected our service levels and distribution of work.

While overall the operational and financial impact to Frontier of the COVID-19 pandemic for the three months ended March 31, 2020 were not significant, we continue to closely monitor the ongoing impact to our employees, our customers, our business and our results of operations. For example, we have experienced a slowdown in service activations and an increase in deactivations for our SMB customers; however, these negative impacts have been partially offset, by higher residential activations and lower churn. While we haven’t noticed any meaningful changes in our customers’ payment behaviors, we continue to closely monitor as any changes could have a material financial impact to Frontier. With more people working from home, we have experienced higher demands on our network and higher sales activity for our residential broadband service offering. We have not experienced any significant disruptions in our service through March 31, 2020; however, a sustained increase in network demand that we have experienced could lead to reduced network availability and potential outages, which may impair our ability to meet customer service level commitments, lead to higher costs, higher customer churn and potential increased regulatory actions.

d) Revenue Recognition:

Revenue for data & Internet services, voice services, video services and switched and non-switched access services is recognized as the service is provided. Services that are billed in advance include monthly recurring network access services (including data services), special access services, and monthly recurring voice, video, and related charges. The unearned portion of these fees is initially deferred as a component of “Advanced billings” on our consolidated balance sheet and recognized as revenue over the period that the services are provided. Services that are billed in arrears include 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 revenue in our consolidated statements of operations and accrued in “Accounts receivable” on our consolidated balance sheet in the period that services are provided. Excise taxes are recognized as a liability when billed.

Satisfaction of Performance Obligations

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

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Bundled Service and Allocation of Discounts

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

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Customer Incentives

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

Upfront Fees

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

Contributions in Aid of Construction (CIAC)

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

Contract Acquisition Costs

Certain costs to acquire customers are deferred and amortized over the expected customer life (average of 4.0 years). For Frontier, this includes certain commissions paid to acquire new customers. Commissions attributable to new customer contracts are deferred and amortized into expense. Unamortized deferred commissions are recorded in Contract acquisition costs and Other assets on our consolidated balance sheet.

Surcharges and Subsidies

Frontier collects various taxes from its customers and subsequently remits these taxes to governmental authorities. Substantially all of these taxes are recorded through the consolidated balance sheet and presented on a net basis in our consolidated statements of operations. We also collect Universal Service Fund (USF) surcharges from customers (primarily federal USF), which amounted to ~~$60~~$49 million and ~~$50 million, and $162 million and $160~~$53 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, and video franchise fees, which amounted to ~~$10~~$9 million and $11 million, ~~and $31 million and $35 million~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, that we

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

have recorded on a gross basis in our consolidated statements of operations and included within “Revenue” and “Network related expenses”.

In June 2015, Frontier accepted the Federal Communications Commission’s (FCC) offer of support to price cap carriers under the Connect America Fund (CAF) Phase II program, which is intended to provide long-term support for broadband in high cost unserved or underserved areas. We are recognizing FCC’s Connect America Fund (CAF) Phase II subsidies into revenue on a straight-line basis over the six year funding term.

d)e)Cash Equivalents:

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash of $50 million is included within “Income taxes and other current assets” on our consolidated balance sheet as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. This amount represents funds held as collateral by a bank against letters of credit issued predominately to insurance carriers.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

e)f)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.~~ acquired. We undertake studies to determine the fair values of assets and liabilities acquired and allocate purchase prices to assets and liabilities, including property, plant and equipment, goodwill and other identifiable ~~intangibles with the residual recorded as goodwill.~~ intangibles. We ~~evaluate~~examine the carrying value of our goodwill and ~~indefinite-lived~~ 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” (reporting unit)~~“reporting unit” level, as that term is defined in GAAP.

We have 2 reporting units (following the announcement of the sale of the Northwest Operations) that aggregate to 1 operating segment, ~~(reporting unit) due to~~based on a number of factors that our management uses to evaluate and run our business operations, including similarities of customers, products and technology. ~~The decline in our stock price, our profitability, and the outlook~~ As of ~~our business during the second and third quarter of~~December 31, 2019, ~~were triggering events that~~all goodwill was fully impaired, other than goodwill reclassified to Assets held for sale. No further impairment testing is required ~~an impairment assessment~~ as of ~~June 30, 2019 and September 30, 2019.~~March 31, 2020. Refer to Note 6.

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

f)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.

g)h)Assets Held for Sale:

We classify assets and related liabilities as held for sale when the following criteria are met: when management has committed to a plan to sell the asset, the asset is available for immediate sale, there is an active program to locate a buyer and the sale and transfer of the asset is probable within one year. Assets and liabilities are presented separately on the Consolidated Balance Sheets with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less costs to sell. Depreciation and amortization for property, plant and equipment and finite-lived intangible assets, are not recorded while these assets are classified as held for sale. Assets held for sale are tested for recoverability each period that they are classified as held for sale.

On May 1, 2020, Frontier completed its sale of its operations and associated assets in Washington, Oregon, Idaho, and Montana (Northwest Operations). See note 18 for further details. As of March 31, 2020 and December 31, 2019, we have reclassified assets and liabilities of our Northwest Operations as held for sale on our consolidated balance sheets, and the amounts and information in the footnotes as they are presented do not include assets and liabilities that have been reclassified. Refer to Note 7.

911

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

each period that they are classified as held for sale. The amounts and information in the footnotes as they are presented do not include assets and liabilities that have been reclassified as held for sale as of September 30, 2019. Refer to Note 7.

(2) Recent Accounting Literature:

Recently Adopted Accounting Pronouncements

~~Leases~~

~~In February 2016, the FASB issued ASU No. 2016 – 02, “Leases (Topic 842).”~~ This standard, along with its related amendments, establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Upon implementation, lessees recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification is 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.

~~Frontier adopted the new lease standard during the first quarter of 2019 using the additional~~ transition method provided by ASU 2018 – 11, “Targeted Improvements.” Under this method, Frontier applied the requirements of the new leases standard as of January 1, 2019 and recognized a cumulative-effect adjustment of $15 million ($11 million net of tax) to accumulated deficit. Consequently, Frontier’s reporting for comparative periods will continue to be in accordance with Topic 840. Refer to Note 11 for additional lease disclosures.

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

~~In February 2018, the FASB issued ASU~~ 2018-02, which allows for the reclassification of certain income tax effects related to the Tax Cuts and Jobs Act (the “Tax Act”) between “Accumulated other comprehensive income” and “Retained earnings.” This ASU relates to the requirement that adjustments to deferred tax liabilities and assets related to a change in tax laws or rates to be included in “Income from continuing operations,” even in situations where the related items were originally recognized in “Other comprehensive income.” Frontier adopted this standard as of January 1, 2019 by recording a decrease to accumulated deficit of $79 million, with a corresponding increase to Accumulated other comprehensive loss on the consolidated balance sheet and the consolidated statement of equity (deficit).

~~Improvements to Nonemployee Share-Based Payment Accounting~~

In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, “Compensation — Stock Compensation (ASC 718), Improvements to Nonemployee Share-Based Payment Accounting,” which aligns the measurement and classification guidance for share-based payments to nonemployees with that for employees, with certain exceptions. Frontier adopted this standard update as of January 1, 2019, and records such awards at their grant date fair value, and the related liability is no longer remeasured in each period. The impact to our consolidated financial statements was not material.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~Financial Instrument Credit Losses~~

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”, which amends the current financial statement impairment model requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Frontier is currently evaluating the impact of adoption of this standard on our consolidated financial statements.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which adds, removes, and modifies certain disclosures required by ASC 820. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The standard’s new disclosures are not applicable for our interim periods and will be included in Frontier’s 10-K disclosures for our Level 3 assets.

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. Frontier adopted this standard effective for January 1, 2020, with no impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Financial Instrument Credit Losses

In June 2016, The FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. This standard, along with its amendments, update the current financial statement impairment model requiring entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. For the Company, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. Frontier is currently still evaluating the impact of ~~the adoption of~~adopting this standard on our ~~disclosures.~~consolidated financial statements.

Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." This standard eliminates requirements for certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures under defined benefit pension plans and other postretirement plans. We are required to adopt this guidance beginning January 1, 2021. Early adoption is permitted. The amendments in the standard would need to be applied on a retrospective basis. Frontier is currently evaluating the impact of the adoption of this standard on our disclosures.

(3) Revenue Recognition:

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

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

Voice services include traditional local and long-distance wireline services, Voice over Internet Protocol (VoIP) services, as well as a number of unified messaging services offered to our residential 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 services provided directly to residential customers through the FiOS^® and Vantage video brands, and through DISH^® satellite TV services;

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Other customer revenue includes switched access revenue, sales of customer premise equipment to our business customers, rents collected for collocation services, and revenue from other services and fees. Switched access revenue includes revenues derived from allowing other carriers to use our network to originate and/or 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; and

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

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

The following tables provide a summary of revenues, by category:

For the three months ended September 30,
For the nine months ended September 30,
($ in millions)
2019
2018
2019
2018
Data and Internet services
$
928
$
961
$
2,858
$
2,919
Voice services
621
669
1,900
2,053
Video services
244
260
772
810
Other
113
141
357
416
Revenue from contracts with customers ⁽¹⁾
1,906
2,031
5,887
6,198
Subsidy revenue
91
95
278
289
Total revenue
$
1,997
$
2,126
$
6,165
$
6,487
For the three months ended September 30,
For the nine months ended September 30,
($ in millions)
2019
2018
2019
2018
Consumer
$
1,024
$
1,069
$
3,151
$
3,292
Commercial
882
962
2,736
2,906
Revenue from contracts with customers ⁽¹⁾
1,906
2,031
5,887
6,198
Subsidy revenue
91
95
278
289
Total revenue
$
1,997
$
2,126
$
6,165
$
6,487



	For the three months ended March 31,
($ in millions)	2020		2019

Data and Internet services	$	932	$	967
Voice services		572		650
Video services		222		268
Other		117		124
Revenue from contracts with customers ⁽¹⁾		1,843		2,009
Subsidy revenue		90		92
Total revenue	$	1,933	$	2,101

	For the three months ended March 31,
($ in millions)	2020		2019

Consumer	$	971	$	1,077
Commercial		872		932
Revenue from contracts with customers ⁽¹⁾		1,843		2,009
Subsidy revenue		90		92
Total revenue	$	1,933	$	2,101

⁽¹⁾Amount includes approximately $17 million and $18 million, ~~and $52 million and $55 million~~ of lease revenue for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

1213

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

The ~~opening and closing balances~~following is a summary of ~~Frontier’s~~the changes in the contract ~~asset~~assets and contract ~~liability balances~~liabilities for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018 are as follows:~~2019:

Contract Assets
Contract Liabilities
($ in millions)
Current
Noncurrent
Current
Noncurrent
Balance at January 1, 2019
$
44
$
25
$
49
$
22
Revenue recognized included
in opening contract balance
(29)
(5)
(56)
(14)
Cash received, excluding amounts
recognized as revenue
-
-
58
9
Credits granted, excluding amounts
recognized as revenue
23
1
-
-
Reclassified between Current
and NonCurrent
5
(5)
(2)
2
Reclassified to held for sale
(3)
(1)
(5)
(1)
Balance at September 30, 2019
$
40
$
15
$
44
$
18
Contract Assets
Contract Liabilities
($ in millions)
Current
Noncurrent
Current
Noncurrent
Balance at January 1, 2018
$
40
$
37
$
41
$
19
Revenue recognized included
in opening contract balance
(38)
-
(86)
(4)
Cash received, excluding amounts
recognized as revenue
-
-
106
3
Credits granted, excluding amounts
recognized as revenue
36
-
-
-
Reclassified between Current
and NonCurrent
-
-
(10)
10
Other
-
-
(6)
-
Balance at September 30, 2018
$
38
$
37
$
45
$
28



	Contract Assets				Contract Liabilities
($ in millions)	Current		Noncurrent		Current		Noncurrent

Balance at December 31, 2019	$	37	$	8	$	41	$	21
Revenue recognized included
in opening contract balance		(9)		-		(21)		(4)
Cash received, excluding amounts
recognized as revenue		-		-		25		5
Credits granted, excluding amounts
recognized as revenue		1		-		-		-
Reclassified between Current
and Non-Current		-		-		1		(1)
Balance at March 31, 2020	$	29	$	8	$	46	$	21


	Contract Assets				Contract Liabilities
($ in millions)	Current		Noncurrent		Current		Noncurrent

Balance at December 31, 2018	$	44	$	25	$	49	$	22
Revenue recognized included
in opening contract balance		(10)		(4)		(20)		(5)
Cash received, excluding amounts
recognized as revenue		-		-		18		3
Credits granted, excluding amounts
recognized as revenue		11		1		-		-
Balance at March 31, 2019	$	45	$	22	$	47	$	20

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

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

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

($ in millions)
Revenue from contracts with customers
2019 (remaining three months)
$
778
2020
1,909
2021
849
2022
385
2023
191
Thereafter

249
Total
$
4,361



($ in millions)	Revenue from contracts with customers
2020 (remaining nine months)	$	1,096
2021		990
2022		456
2023		193
2024		103
Thereafter		626
Total	$	3,464	⁽¹⁾

⁽¹⁾Future performance obligations include $248 million related to our Northwest Operations. Refer to Note 7.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(4) Accounts Receivable:

The components of accounts receivable, net are as follows:

($ in millions)
September 30, 2019
December 31, 2018

Retail and wholesale
$
669
$
745
Other
76
83
Less: Allowance for doubtful accounts
(91)
(105)
Accounts receivable, net
$
654
$
723



($ in millions)	March 31, 2020		December 31, 2019

Retail and wholesale	$	625	$	678
Other		71		71
Less: Allowance for doubtful accounts		(100)		(120)
Accounts receivable, net	$	596	$	629

We maintain an allowance for doubtful accounts based on our estimate of our ability to collect accounts receivable. The reduction in our reserves for doubtful accounts was driven by settlements reached with our wholesale customers exceeding new reserves during the period.

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

For the three months ended September 30,
For the nine months ended September 30,
($ in millions)
2019
2018
2019
2018
Bad debt expense
$
16
$
21
$
48
$
62



	For the three months ended March 31,
($ in millions)	2020		2019

Bad debt expense	$	14	$	14

(5) Property, Plant and Equipment:

Property, plant and equipment, net is as follows:

($ in millions)
September 30, 2019
December 31, 2018

Property, plant and equipment
$
26,274
$
27,657
Less: Accumulated depreciation
(13,301)
(13,470)
Property, plant and equipment, net
$
12,973
$
14,187



($ in millions)	March 31, 2020			December 31, 2019

Property, plant and equipment	$	26,788		$	26,552
Less: Accumulated depreciation		(13,898)			(13,589)
Property, plant and equipment, net	$	12,890	⁽¹⁾	$	12,963

~~PART I. FINANCIAL INFORMATION (Continued)~~⁽¹⁾

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~Amounts exclude $1,075 million and $1,049 million reclassified as Held for Sale as of March 31, 2020 and December 31, 2019, respectively. Refer to Note 7.

~~In 2017 and 2018, we sold certain properties subject to leaseback, generating $106 million in net proceeds.~~ In connection with the adoption of ~~ASC 842,~~ASU No. 2016 – 02, “Leases (Topic 842)”, the $15 million ($11 million net of tax) of unamortized deferred gains ~~resulting~~that had resulted from ~~these~~certain sale leaseback transactions were recognized directly to opening accumulated deficit as of January 1, 2019.

In January 2019, we closed the sale of certain wireless towers for approximately $76 million. The aggregate carrying value of the towers was approximately $1 million, resulting in a gain on ~~the~~ sale of $75 million which was recognized against “Accumulated Depreciation” in our consolidated balance sheet during the three months ended March 31, 2019.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

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)
2019
2018
2019
2018
Depreciation expense
$
321
$
337
$
1,016
$
1,025



	For the three months ended March 31,
($ in millions)	2020		2019

Depreciation expense	$	316	$	353

We ~~adopted new~~revised the estimated remaining useful lives for certain plant assets as of October 1, ~~2018,~~2019, as a result of an annual independent study of the estimated remaining useful lives of our plant assets, with an insignificant impact to depreciation expense.

(6) Goodwill and Other Intangibles:

~~We perform impairment tests related to our goodwill annually~~All Goodwill was fully impaired as of March 31, 2020 and December 31, ~~or sooner if an indicator of impairment occurs. The decline in our stock price, our profitability, and the outlook of our business during the second and third quarter of~~ 2019, ~~were each triggering events that required an impairment assessment as of June 30, 2019 and September 30, 2019.~~

~~We use a market multiples approach~~other than goodwill reclassified to ~~determine Frontier’s enterprise fair value~~Assets held for purposes of assessing goodwill for impairment. Marketplace comparisons, analyst reports and trends for other public companies within the telecommunications industry whose service offerings are comparable to ours have a range of fair value multiples between 4.1x and 7.6x of annualized expected EBITDA as adjusted for certain items. At September 30, 2019, we estimated the enterprise fair value using an EBITDA multiple of 4.4x.

Our quantitative assessment indicated that the carrying value of the enterprise exceeded its fair value as of September 30, 2019, and, therefore, an impairment existed. This impairment reflected a lower enterprise valuation driven by lower profitability. This reflects, among other things, pressures on our business resulting in a continued deterioration in revenue, challenges in achieving improvements in revenue and customer trends under our transformation program, the long-term sustainability of our capital structure, and the lower outlook for our industry as a whole.

The market multiples approach we use incorporates significant estimates and assumptions related to our forecasted profitability, principally revenue and operating expenses. Our assessment also includes certain qualitative factors that require significant judgment, including challenges in achieving improvements in revenue and customer trends under our transformation program, the amount and timing of other anticipated transformation benefits, and uncertainty regarding the timing and successor to the FCC’s CAF Phase II program. Alternative interpretations of these factors could have resulted in different conclusions regarding the need for, or size of, an 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, 2019.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~As a result of this assessment, we impaired the $276 million remaining balance of our goodwill during the three months ended September 30, 2019.~~

We recorded goodwill impairment of $5,449 million in the three-month period ended June 30, 2019, which was based on the amount that Frontier’s enterprise carrying value exceeded its fair value. This impairment reflected a lower enterprise valuation driven by lower profitability as well as a reduction in the utilized market multiple from 5.3x at December 31, 2018 to 4.4x at June 30, 2019.

~~The changes in the carrying amount of goodwill, net for the nine months ended September 30, 2019 was as follows:~~



~~($ in millions)~~

~~Balance at January 1, 2019~~	$	~~6,383~~
~~Reclassified as held for sale~~ ⁽¹⁾		~~(658)~~
~~Goodwill impairment~~		~~(5,725)~~
~~Balance at September 30, 2019~~	$	-

⁽¹⁾~~Represents the amounts reclassified as held-for-sale related to the Company’s Northwest Operations. See Note 7.~~

sale. Accumulated goodwill impairment charges were $9,154 million ~~and $3,429 million~~ as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

The components of other intangibles are as follows:

September 30, 2019
December 31, 2018
Gross Carrying
Accumulated
Net Carrying
Gross Carrying
Accumulated
Net Carrying
($ in millions)
Amount
Amortization
Amount
Amount
Amortization
Amount

Other Intangibles:
Customer base
$
4,332
$
(3,356)
$
976
$
5,188
$
(3,848)
$
1,340
Trade name
122
-
122
122
-
122
Royalty agreement
72
(50)
22
72
(40)
32
Total other intangibles
$
4,526
$
(3,406)
$
1,120
$
5,382
$
(3,888)
$
1,494



	March 31, 2020						December 31, 2019
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
($ in millions)	Amount		Amortization		Amount		Amount		Amortization		Amount

Other Intangibles:
Customer base	$	4,332	$	(3,547)	$	785	$	4,332	$	(3,452)	$	880
Trade name		122		-		122		122		-		122
Royalty agreement		72		(58)		14		72		(54)		18
Total other intangibles	$	4,526	$	(3,605)	$	921	$	4,526	$	(3,506)	$	1,020

Amortization expense was as follows:

For the three months ended September 30,
For the nine months ended September 30,
($ in millions)
2019
2018
2019
2018
Amortization expense
$
101
$
134
$
344
$
437



	For the three months ended March 31,
($ in millions)	2020		2019

Amortization expense	$	99	$	131

Amortization expense primarily represents the amortization of our customer base acquired as a result of our acquisitions in 2010, 2014, and 2016 with each based on a useful life of 8 to 12 years and amortized on an accelerated method.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~Our Trade name is an indefinite-lived intangible asset that is not subject to amortization.

(7) Planned divestiture of Northwest Operations:

InOn May ~~2019,~~1, 2020, Frontier entered into a definitive agreement to sell its operations and associated assets in Washington, Oregon, Idaho, and Montana (Northwest Operations) for $1,352 million, subject to certain closing adjustments, including adjustments for working capital and certain pension and retiree medical liabilities. The sale is expected to close during the first half of 2020, subject to customary closing conditions including regulatory approvals. In connection withcompleted the sale ~~Frontier has entered into a transition services agreement with the purchaser to provide various network and support services~~of its Northwest Operations. See note 18 for ~~a minimum of six months following the transaction closing.~~further details.

This transaction does not represent a strategic shift for Frontier; therefore, it does not meet the criteria to be classified as a discontinued operation. ~~As a result, the Northwest Operations will continue to be reported in our operating results until the sale is finalized.~~

Effective with the designation as held-for-sale on May 28, 2019, we discontinued recording depreciation on Property, Plant and Equipment and finite-lived intangible assets of this business as required by ~~the accounting rules.~~GAAP. The Company also separately classified the related assets and liabilities of the business as ~~held-for-sale~~“held-for-sale” as of this date and in its ~~September 30, 2019~~March 31, 2020 consolidated balance sheet.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

As a result of its ongoing evaluation of the recoverability of the carrying value of the assets and liabilities held for sale as of March 31, 2020 relative to the agreed upon sales price, adjusted for costs to sell, Frontier recorded an estimated loss on disposal of ~~$414~~$24 million during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 in its consolidated statement of operations and a corresponding adjustment to the valuation allowance included in assets held for sale on its consolidated balance sheet.

The principal components of the held-for-sale assets and liabilities as of ~~September 30, 2019~~March 31, 2020 are as follows:




($ in millions)	~~September 30, 2019~~March 31, 2020
ASSETS

Accounts receivable, less allowances of $7$12	$	5149
Prepaid expenses		21
Contract acquisition costs		108
Other current assets		32
Property, plant and equipment, net		~~1,021~~1,075
Goodwill ⁽¹⁾		658
Other intangibles, net		30
Other assets		2617
Valuation allowance on assets held for sale		~~(399)~~(434)
Total assets held for sale	$	~~1,402~~1,406

LIABILITIES

Accounts payable	$	1013
Advanced billings		18
Accrued other taxes		139
Other current liabilities		2314
Pension and other postretirement benefits ⁽²⁾		3029
Other liabilities		4032
Total liabilities held for sale	$	~~134~~115

⁽¹⁾The assignment of goodwill was based on the relative fair value of the disposal group and the portion of the remaining reporting ~~unit.~~unit upon designation as “held for sale” as of May 28, 2019.

⁽²⁾Excludes pension liability of ~~$146~~$163 million, which will be fully funded upon closing. Approximately ~~$87~~$98 million, or 60% of the pension liability will be funded through the transfer of Pension Plan assets. The remaining liability will be separately funded by Frontier at the time of ~~closing.~~closing.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

(8) Fair Value of Financial Instruments:

The following table summarizes the carrying amounts and estimated fair values for long-term debt at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. For the other financial instruments including cash, accounts receivable, restricted cash, accounts payable and other current liabilities, the carrying amounts approximate fair value due to the relatively short maturities of those instruments.

The fair value of our long-term debt is estimated based upon quoted market prices at the reporting date for those financial instruments.



	September 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019

($ in millions)		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value

Total debt	$	17,520	$	11,690	$	17,400	$	12,756	$	17,511	$	10,117	$	17,516	$	12,026

(

(9) Long-Term Debt:

The ~~activity in~~filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our ~~long-term~~obligations under the documents governing the JPM Credit Facilities, the First Lien Notes, the Second Lien Notes, our unsecured notes and debentures and the secured and unsecured debentures of our subsidiaries. As such we have reclassified all debt ~~from January 1, 2019 through September 30, 2019 is summarized~~obligations to Long term debt due within one year on our consolidated balance sheet as ~~follows:~~of March 31, 2020. While this reclassification includes all of our debt, the Restructuring Support Agreement contemplates agreed-upon terms for a pre-arranged financial restructuring Plan that leaves unimpaired all holders of secured debt and subsidiary debt. Among other things, the Restructuring Support Agreement provides that holders of our secured debt will be entitled to receive cash interest payments and to have the principal amount of their indebtedness repaid or reinstated upon emergence and that holders of secured and unsecured debt of our subsidiaries will be entitled to receive cash interest payments and to have the principal amount of their indebtedness reinstated upon emergence.

For the nine months ended
‎September 30, 2019

Principal
Interest Rate at
January 1,
Payments
September 30,
September 30,
($ in millions)
2019
and Retirements
New Borrowings
2019
2019*






Secured debt issued by Frontier
$
5,246
$
(2,130)
$
2,599
$
5,715
7.35%
Unsecured debt issued by Frontier
11,297
(348)
-
10,949
9.63%
Secured debt issued by subsidiaries
107
(1)
-
106
8.36%
Unsecured debt issued by subsidiaries
750
-
-
750
6.90%
Total debt
$
17,400
$
(2,479)
$
2,599
$
17,520
8.76%







  Less: Debt Issuance Costs
(178)

(174)
  Less: Debt Discount
(50)
(47)
  Less: Current Portion
(814)

(994)
Total Long-term debt
$
16,358

$
16,305

* Interest rate includes amortizationPursuant to Section 362 of ~~debt issuance costs and debt discounts. The interest rates at September 30, 2019 represent a weighted average~~the Bankruptcy Code, the filing of ~~multiple issuances.~~the Chapter 11 Cases automatically stayed most actions against or on behalf of the Company Parties, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company Parties’ property.

‎For information about subsequent events related to the Restructuring Support Agreement, the Chapter 11 Cases and the Plan, refer to Note 18.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Additional information regarding~~The activity in our long-term debt ~~as of September 30, 2019 and December~~from January 1, 2020 through March 31, ~~2018~~2020 is summarized as follows:

September 30, 2019
December 31, 2018
Principal
Interest
Principal
Interest
($ in millions)
Outstanding
Rate
Outstanding
Rate
Secured debt issued by Frontier
Term loan due 3/31/2021 ⁽¹⁾
$
-
$
1,402
5.280% (Variable)
Term loan due 10/12/2021⁽²⁾
-
239
7.405% (Variable)
Revolver due 2/27/2024 ⁽³⁾
749
5.043% (Variable)
275
5.280% (Variable)
Term loan due 6/15/2024 ⁽⁴⁾
1,703
5.800% (Variable)
1,716
6.280% (Variable)
First lien notes due 4/1/2027
1,650
8.000%
-
Second lien notes due 4/1/2026
1,600
8.500%
1,600
8.500%
IDRB due 5/1/2030
13
6.200%
13
6.200%
Equipment financings
-
1
0.000%
Total secured debt issued by Frontier
5,715
5,246
Senior notes due 3/15/2019
-
348
7.125%
Senior notes due 4/15/2020
172
8.500%
172
8.500%
Senior notes due 9/15/2020
55
8.875%
55
8.875%
Senior notes due 7/1/2021
89
9.250%
89
9.250%
Senior notes due 9/15/2021
220
6.250%
220
6.250%
Senior notes due 4/15/2022
500
8.750%
500
8.750%
Senior notes due 9/15/2022
2,188
10.500%
2,188
10.500%
Senior notes due 1/15/2023
850
7.125%
850
7.125%
Senior notes due 4/15/2024
750
7.625%
750
7.625%
Senior notes due 1/15/2025
775
6.875%
775
6.875%
Senior notes due 9/15/2025
3,600
11.000%
3,600
11.000%
Debentures due 11/1/2025
138
7.000%
138
7.000%
Debentures due 8/15/2026
2
6.800%
2
6.800%
Senior notes due 1/15/2027
346
7.875%
346
7.875%
Senior notes due 8/15/2031
945
9.000%
945
9.000%
Debentures due 10/1/2034
1
7.680%
1
7.680%
Debentures due 7/1/2035
125
7.450%
125
7.450%
Debentures due 10/1/2046
193
7.050%
193
7.050%
Total unsecured debt issued by Frontier
10,949
11,297
Secured debt issued by subsidiaries
Debentures due 11/15/2031
100
8.500%
100
8.500%
RUS loan contracts due 1/3/2028
6
6.154%
7
6.154%
Total secured debt issued by subsidiaries
106
107
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%
Total unsecured debt issued by subsidiaries
750
750
Total debt
$
17,520
8.522% ⁽⁵⁾
$
17,400
8.411% ⁽⁵⁾



			For the three months ended ‎March 31, 2020
			Principal						Interest Rate at
	January 1,		Payments				March 31,		March 31,
($ in millions)	2020		and Retirements		New Borrowings		2020		2020*

Secured debt issued by Frontier	$	5,711	$	(5)	$	-	$	5,706	7.17%
Unsecured debt issued by Frontier		10,949		-		-		10,949	9.62%
Secured debt issued by subsidiaries		106		-		-		106	8.37%
Unsecured debt issued by subsidiaries		750		-		-		750	6.90%
Total debt	$	17,516	$	(5)	$	-	$	17,511	8.69%

Less: Debt Issuance Costs		(168)						(160)
Less: Debt Discount		(46)						(45)
Less: Current Portion		(994)						(17,306)
Total Long-term debt	$	16,308					$	-

⁽¹⁾ ~~Represents borrowings under the JPM Credit Agreement Term Loan A, as defined below.~~

⁽²⁾ ~~Represents borrowings under the 2016 CoBank Credit Agreement, as defined below.~~

⁽³⁾ ~~Represents borrowings under the JPM Credit Agreement Revolver, as defined below.~~

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

⁽⁵⁾* Interest rate ~~represents~~includes amortization of debt issuance costs and debt discounts. The interest rates at March 31, 2020 represent a weighted average of ~~the stated interest rates of~~ multiple ~~issuances~~.issuances.

‎

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Additional information regarding our secured and unsecured long-term debt as of March 31, 2020 (prior to the filing of the Chapter 11 Cases) and December 31, is as follows:



	March 31, 2020			December 31, 2019

	Principal		Interest	Principal		Interest
($ in millions)	Outstanding		Rate	Outstanding		Rate

Secured debt issued by Frontier
Revolver due 2/27/2024 ⁽¹⁾	$	749	4.680% (Variable)	$	749	4.760% (Variable)
Term loan due 6/15/2024 ⁽²⁾		1,694	5.350% (Variable)		1,699	5.550% (Variable)
First lien notes due 4/1/2027		1,650	8.000%		1,650	8.000%
Second lien notes due 4/1/2026		1,600	8.500%		1,600	8.500%
IDRB due 5/1/2030		13	6.200%		13	6.200%
Total secured debt issued by Frontier		5,706			5,711

Senior notes due 4/15/2020		172	8.500%		172	8.500%
Senior notes due 9/15/2020		55	8.875%		55	8.875%
Senior notes due 7/1/2021		89	9.250%		89	9.250%
Senior notes due 9/15/2021		220	6.250%		220	6.250%
Senior notes due 4/15/2022		500	8.750%		500	8.750%
Senior notes due 9/15/2022		2,188	10.500%		2,188	10.500%
Senior notes due 1/15/2023		850	7.125%		850	7.125%
Senior notes due 4/15/2024		750	7.625%		750	7.625%
Senior notes due 1/15/2025		775	6.875%		775	6.875%
Senior notes due 9/15/2025		3,600	11.000%		3,600	11.000%
Debentures due 11/1/2025		138	7.000%		138	7.000%
Debentures due 8/15/2026		2	6.800%		2	6.800%
Senior notes due 1/15/2027		346	7.875%		346	7.875%
Senior notes due 8/15/2031		945	9.000%		945	9.000%
Debentures due 10/1/2034		1	7.680%		1	7.680%
Debentures due 7/1/2035		125	7.450%		125	7.450%
Debentures due 10/1/2046		193	7.050%		193	7.050%
Total unsecured debt issued by Frontier		10,949			10,949

Secured debt issued by subsidiaries
Debentures due 11/15/2031		100	8.500%		100	8.500%
RUS loan contracts due 1/3/2028		6	6.154%		6	6.154%
Total secured debt issued by subsidiaries		106			106

Unsecured debt issued by subsidiaries
Debentures due 5/15/2027		200	6.750%		200	6.750%
Debentures due 2/1/2028		300	6.860%		300	6.860%
Debentures due 2/15/2028		200	6.730%		200	6.730%
Debentures due 10/15/2029		50	8.400%		50	8.400%
Total unsecured debt issued by subsidiaries		750			750

Total debt	$	17,511	8.464% ⁽³⁾	$	17,516	8.486% ⁽³⁾

⁽¹⁾ Represents borrowings under the JPM Credit Agreement Revolver, as defined below.

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

⁽³⁾ Interest rate represents a weighted average of the stated interest rates of multiple issuances.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Term Loan and Revolving Credit Facilities

JP Morgan Credit Facilities

On February 27, 2017, Frontier entered into a first amended and restated credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which Frontier combined its revolving credit agreement, dated as of June 2, 2014, and its term loan credit agreement, dated as of August 12, 2015. Under the JPM Credit Agreement (as amended to date, the JPM Credit Agreement), Frontier has a $1,740 million senior secured Term Loan B facility (the Term Loan B) maturing on June 15, 2024 and an $850 million secured revolving credit facility maturing on February 27, 2024 (the Revolver). The maturities of the Term Loan B and the Revolver, in each case if still outstanding, will be accelerated in the following circumstances: (i) if, 91 days before the maturity date of any series of Senior Notes maturing in 2020, 2023 and 2024, more than $500 million in principal amount remains outstanding on such ~~series;~~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. As of ~~September 30, 2019,~~March 31, 2020, approximately $227 million principal amount, in the aggregate, remains outstanding on the two series of senior notes maturing in 2020 and $309 million principal amount, in the aggregate, remains outstanding on the two series of senior notes maturing in 2021.

The determination of interest rates for the Term Loan B and Revolver under the JPM Credit Agreement is based on margins over the Base Rate (as defined in the JPM Credit Agreement) or over LIBOR, at the election of Frontier. Interest rate margins on the Revolver (ranging from 1.00% to 2.00% for Base Rate borrowings and 2.00% to 3.00% for LIBOR borrowings) are subject to adjustment based on Frontier’s Leverage Ratio (as defined in the JPM Credit Agreement). The interest rate on the Revolver as of ~~September 30, 2019~~March 31, 2020 was LIBOR plus 3.00%. Interest rate margins on the Term Loan B (2.75% for Base Rate borrowings and 3.75% for LIBOR borrowings) are not subject to adjustment. The security package under the JPM Credit Agreement includes pledges of the equity interests in certain Frontier subsidiaries and guarantees by certain Frontier subsidiaries.

As of ~~September 30, 2019,~~March 31, 2020, Frontier had borrowings of $749 million outstanding under the Revolver (with letters of credit issued under the Revolver totaling an additional $101 million). ~~In July 2019, a $20 million Letter of Credit issued under the Bank of Tokyo LC agreement was replaced by a Letter of Credit issued under the Revolver.~~

On March 15, 2019, Frontier used proceeds from the offering of First Lien Notes, together with cash on hand, to repay in full the outstanding borrowings under its $1,625 million senior secured Term Loan A facility, which otherwise would have matured in March 2021, as described below under “New Debt Issuances and Debt Reductions.”

~~In addition~~, Frontier amended the JPM Credit Agreement to, among other things, ~~(i)~~ extend the maturity date of the Revolver from February 27, 2022 to February 27, 2024 ~~(ii)~~(subject to springing maturity to any tranche of our existing debt with an aggregate outstanding principal amount in excess of $500 million), increase the interest rate applicable to ~~such revolving~~ loans under the Revolver by 0.25% and ~~(iii)~~ make certain modifications to the debt and restricted payment covenants. On April 26, 2019, Frontier further amended the JPM Credit Agreement to, among other things, extend the maturity date of the outstanding small tranche of loans under the Revolver that had not been party to the March 2019 amendments.

~~CoBank~~Frontier also had a $1,625 million senior secured Term Loan A facility (the Term Loan A) under the JPM Credit ~~Facilities~~Agreement which was fully repaid on March 15, 2019, as described below under “New Debt Issuances and Debt Reductions.”

~~As of December 31, 2018,~~ Repaid CoBank Credit Facilities

Frontier had ~~$239 million outstanding under~~ a $315 million senior term loan facility drawn in October 2016 ~~(as amended, the~~(the 2016 CoBank Credit Agreement) with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other ~~lenders. On~~lenders which was repaid in full on March 15, ~~2019,~~2019. Frontier ~~used proceeds from the offering of First Lien Notes, together~~had a separate $350 million senior term loan facility drawn in 2014 (the 2014 CoBank Credit Agreement) with ~~cash on hand, to repay~~CoBank which was repaid in full ~~the outstanding borrowings under the 2016 CoBank Credit Agreement, which otherwise would have matured in October 2021, as~~on July 3, 2018. Details of both transactions are described below under “New Debt Issuances and Debt Reductions.”

New Debt Issuances and Debt Reductions

On March 15, 2019, Frontier completed a private offering of $1,650 million aggregate principal amount of ~~8.00%~~8.000% First Lien Secured Notes due 2027 (the First Lien Notes). The First Lien Notes are guaranteed by each of the Company’s subsidiaries that guarantees ~~its~~the JPM Credit Agreement, including the Term Loan B and ~~Revolver under the JPM Credit Agreement (the~~

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Senior Secured Credit Facilities).~~Revolver. The guarantees are unsecured obligations of the guarantors equal in right of payment to all of the guarantor’s obligations under the ~~Company’s senior secured credit facilities~~JPM Credit Agreement and certain other permitted future senior indebtedness and senior

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

in right of payment to all subordinated obligations of the guarantors. The First Lien Notes are secured on a first-priority basis by all the assets that secure the Company’s obligations under ~~its Senior Secured~~the JPM Credit ~~Facilities~~Agreement on a first-priority basis. Interest on the First Lien Notes is payable to holders of record semi-annually in arrears on April 1 and October 1 of each year, commencing October 1, 2019.

~~On March 19, 2018, Frontier completed a private offering of $1,600 million aggregate principal amount of 8.50% Second Lien Secured Notes due~~ ~~2026~~ (the Second Lien Notes). The Second Lien Notes are guaranteed by each of the Company’s subsidiaries that guarantees its Senior Secured Credit Facilities. The guarantees are unsecured obligations of the guarantors and subordinated in right of payment to all of the guarantor’s obligations under the Company’s senior secured credit facilities and certain other permitted future senior indebtedness but equal in right of payment with all other unsubordinated obligations of the guarantors. The Second Lien Notes indenture provides that (a) the aggregate amount of all guaranteed obligations guaranteed by the guarantors are limited and shall not, at any time, exceed the lesser of (x) the principal amount of the Second Lien Notes then outstanding and (y) the Maximum Guarantee Amount (as defined in the Second Lien Notes indenture), and (b) for the avoidance of doubt, nothing in the Second Lien Notes indenture shall, on any date or from time to time, allow the aggregate amount of all such guaranteed obligations guaranteed by the guarantors to cause or result in the Company or any subsidiary violating any indenture governing the Company’s existing senior notes.

The Second Lien Notes are secured on a second-priority basis by all the assets that secure Frontier’s obligations under its senior secured credit facilities on a first-priority basis. The collateral securing the Second Lien Notes and the Company’s senior secured credit facilities is limited to the equity interests of certain subsidiaries of the Company and substantially all personal property of Frontier Video Services, Inc. The Second Lien Notes bear interest at a rate of 8.50% per annum and mature on April 1, 2026. Interest on the Second Lien Notes is payable semi-annually in arrears on April 1 and October 1 of each year, commencing October 1, 2018. On July 3, 2018, the collateral package for the Second Lien Notes was amended to replace certain operating subsidiary equity pledges with pledges of the equity interests of certain direct subsidiaries of Frontier, consistent with amendments made to Frontier’s credit agreements.

~~On July 3, 2018, the Company entered into Increase Joinder No. 2 to the JPM Credit Agreement, pursuant to which the Company borrowed an incremental $240 million under the Term Loan B maturing in~~ ~~2024~~. The Company used the incremental borrowings to repay in full the 2014 CoBank Credit Agreement, repay a portion of the 2016 CoBank Credit Agreement and pay certain fees and expenses related to this incremental borrowing.

~~For the nine months ended September 30, 2019, Frontier retired $348 million principal amount of 7.125% senior unsecured notes due~~ ~~2019~~.

Additionally, on March 15, 2019, Frontier used the proceeds from the offering of First Lien Notes, together with cash on hand, to (i) repay in full the outstanding borrowings under the senior secured Term Loan A facility under the JPM Credit Agreement, which otherwise would have matured in March 2021, (ii) repay in full the outstanding borrowings under the 2016 CoBank Credit Agreement, which otherwise would have matured in October 2021, and (iii) pay related interest, fees and expenses.

~~During~~For the ~~first nine~~three months ended March 31, 2020, Frontier retired $5 million principal amount of senior secured debt. For the three months ended March 31, 2019, Frontier retired $348 million principal amount of 7.125% senior unsecured notes due 2019.

During 2019, Frontier recorded a ~~loss~~gain on early extinguishment of debt of $20 million driven primarily by the write-off of unamortized original issuance costs associated with the retired Term Loan A and 2016 CoBank Credit Agreement.

During the first nine months of 2018, Frontier recorded a gain on early extinguishment of debt of $31 million driven primarily by discounts received on the retirement of certain notes, slightly offset by premiums paid to retire certain notes and unamortized original issuance costs.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Our scheduled principal payments are as follows as of September 30, 2019. This does not reflect outstanding borrowings under the Revolver.~~

($ in millions)
Principal payments

2019 (remaining three months)
$
4
2020
$
245
2021
$
327
2022
$
2,706
2023
$
868
Thereafter
$
12,621

(10) Restructuring Costs and Other Charges:

~~Transformation Program~~

~~During the second quarter~~As of ~~2018, Frontier announced a multi-year strategic plan with the objective~~March 31, 2020, restructuring related liabilities of ~~improving revenues, profitability,~~$14 million pertaining to employee separation charges and ~~cash flows by enhancing~~accrued costs related to transformation initiatives are included in “Other current liabilities” in our operations and customer service and support processes. During the three and nine months ended September 30, 2019, we incurred $9 million and $38 million, respectively, in costs directly associated with these activities.

We had retained a consulting firm to assist in executing on various aspects of the transformation program. This agreement was terminated in June 2019 and in connection therewith we made a payment in the third quarter of approximately $30 million of previously accrued expenses. We continue to pursue a reduced transformation program and expect associated expenses to be recognized as incurred. Amounts accrued in connection with the consulting arrangement are recognized as operating expense under “Restructuring costs and other charges.”consolidated balance sheet.

Restructuring Costs and Other Charges

~~Restructuring costs and other charges,~~During the first three months of 2020, we incurred $48 million in expenses related to changes in the operation of our business, consisting ~~primarily~~of $8 million directly associated with transformation initiatives, $2 million of severance and ~~other employee-related~~employee costs ~~of $29 million~~resulting from workforce reductions, and ~~costs directly associated with the transformation program of~~ $38 million of consulting and advisory costs related to our balance sheet restructuring activities, which are included in “Restructuring costs and other charges” in our consolidated statement of operations for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

~~For~~During the ~~nine~~first three months ~~ended September 30, 2018, restructuring~~2019, we incurred $28 million in expenses related to changes in the operation of our business, consisting of $13 million directly associated with transformation initiatives and $15 million of severance and employee costs resulting from workforce reductions, which are included in “Restructuring costs and other ~~charges, consisted primarily~~charges” in our consolidated statement of ~~severance and other employee-related costs of $11 million.~~

operations for the three months ended March 31, 2019.

The following is a summary of the changes in the liabilities established for restructuring and other related programs for the ~~nine~~three months ended ~~September 30, 2019 which are all classified in other current liabilities:~~

March 31, 2020:



($ in millions)

Balance at January 1, ~~2019~~2020	$	1815
Severance expense		292
Transformation costs		388
Other ~~restructuring~~ costs		1938
Cash payments during the period		~~(95)~~(49)
Balance at ~~September 30, 2019~~March 31, 2020	$	914

(10)

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

(11)~~Leases:~~

With the adoption of ASC 842 on January 1, 2019, Frontier elected to apply the ‘package of practical expedients’, which permits the Company to not reassess under the new standard its prior conclusions including lease identification, lease classification, and initial direct costs. Additionally, Frontier elected to apply the land easement practical expedient, which permits the Company to account for land easements under the new standard only on a prospective basis. Frontier did not apply the use of hindsight practical expedient.

~~The following table includes information for the transition adjustment recorded as of January 1, 2019 to record the cumulative impact of adoption of ASC 842 for prior periods:~~

(Unaudited)
As Reported
ASC 842
Adjusted
($ in millions)
December 31, 2018
Transition Adjustment
January 1, 2019
Assets
Other assets
$
265
$
205
⁽¹⁾
$
470
Liabilities and Equity (Deficit)
Other current liabilities
$
394
$
32
⁽²⁾
$
426
Other liabilities
$
281
$
158
⁽³⁾
$
439
Deferred income taxes
$
1,109
$
4
⁽⁴⁾
$
1,113
Accumulated deficit
$
(2,752)
$
11
⁽⁵⁾
$
(2,741)

⁽¹⁾~~Includes $205 million of operating Right-of-use (ROU) assets recorded upon adoption.~~

⁽²⁾~~Includes $46 million of operating lease liabilities, partially offset by $14 million recognition of the current portion of deferred gains on sale of property to accumulated deficit.~~

⁽³⁾Includes $168 million of operating lease liabilities, partially offset by $1 million recognition of deferred gains on sale of property to accumulated deficit and $9 million of deferred rent reclassified to Operating Right-of-use assets.

⁽⁴⁾~~Represents the tax effect of the recognition of $15 million in deferred gains on sale of property to accumulated deficit.~~

⁽⁵⁾~~Includes the recognition of $15 million in deferred gains on the sale of property, partially offset by $4 million tax impact on the recognition of the gain.~~

~~The components of lease cost are as follows:~~

For the three months ended
For the nine months ended
($ in millions)
September 30, 2019
September 30, 2019
Lease cost:
Finance lease cost:
Amortization of right-of-use assets
$
3
$
9
Interest on lease liabilities
3
11
Finance lease cost
6
20
Operating lease cost ⁽¹⁾
19
56
Sublease income
(2)
(9)
Total Lease cost
$
23
$
67

⁽¹⁾~~Includes short-term lease cost of $0 and $2 million and variable lease cost of $1 million and $5 million for the three and nine months ended September 30, 2019, respectively.~~

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Supplemental balance sheet information related to leases is as follows:~~

($ in millions)
September 30, 2019
Operating right-of-use assets
$
196
⁽¹⁾
Finance right-of-use assets
$
170
⁽²⁾
Operating lease liabilities
$
203
⁽³⁾
Finance lease liabilities
$
161
⁽⁴⁾
Operating leases:
Weighted-average remaining lease term
7.61
years
Weighted-average discount rate
8.26
%
Finance leases:
Weighted-average remaining lease term
8.86
years
Weighted-average discount rate
7.97
%

⁽¹⁾~~Operating ROU assets are included in Other assets on our consolidated balance sheet.~~

⁽²⁾~~Finance ROU assets are included in Property, plant, and equipment on our September 30, 2019 consolidated balance sheet.~~

⁽³⁾~~This amount represents $44 million and $159 million included in other current liabilities and other liabilities, respectively, on our September 30, 2019 consolidated balance sheet.~~

⁽⁴⁾~~This amount represents $28 million and $133 million included in other current liabilities and other liabilities, respectively, on our September 30, 2019 consolidated balance sheet.~~

~~Supplemental cash flow information related to leases is as follows:~~

For the nine months ended
($ in millions)
September 30, 2019
Cash paid for amount included in the measurement
of lease liabilities, net of amounts received as
revenue:
Operating cash flows provided by operating leases
$
52
Operating cash flows used by operating leases
$
(53)
Operating cash flows used by finance leases
$
(11)
Financing cash flows used by finance leases
$
(26)
Right-of-use assets obtained in exchange for lease
liabilities:
Operating leases
$
26
Finance leases
$
28

~~Lessee~~

For lessee agreements, Frontier elected to apply the short-term lease recognition exemption for all leases that qualify and as such, does not recognize assets or liabilities for leases with terms of less than twelve months, including existing leases at transition. Frontier elected not to separate lease and non-lease components.

As of January 1, 2019, Frontier has operating and finance leases for administrative and network properties, vehicles, and certain equipment. Our leases have remaining lease terms of 1 year to 99 years, some of which include options to extend the leases, and some of which include options to terminate the leases within 1 year.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~The following represents a maturity analysis for our operating and finance lease liabilities as of September 30, 2019:~~

Operating
Finance
($ in millions)
Leases
Leases
Future maturities:
2019 (remaining three months)
$
12
$
11
2020
44
35
2021
38
31
2022
36
26
2023
33
22
Thereafter
106
104
Total lease payments
269
229
Less: imputed interest
(66)
(68)
Present value of lease liabilities
$
203
$
161

Upon adoption of ASC 842, we recorded the unamortized deferred gain balances for previous sale-leasebacks of real estate assets as a transition adjustment, which had the effect of decreasing our accumulated deficit by $15 million ($11 million net of tax).

~~Lessor~~

Frontier is the lessor for operating leases of towers, datacenters, corporate offices, and certain equipment. Our leases have remaining lease terms of 1 year to 99 years, some of which include options to extend the leases, and some of which include options to terminate the leases within 1 year. None of these leases include options for our lessees to purchase the underlying asset.

A significant number of Frontier’s telecom service contracts with its customers include equipment rentals. The Company has elected to apply the practical expedient to account for those associated equipment rentals and telecom services as a single, combined component. We have evaluated the service component to be ‘predominant’ in these contracts and have accounted for the combined component as a single performance obligation under ASC 606.

~~For the three and nine months ended September 30, 2019, Frontier, as a lessor, recognized revenue of $17 million and $52 million, respectively.~~

~~The following represents a maturity analysis for our future operating lease payments from customers as of September 30, 2019:~~

Operating
($ in millions)
Lease Payments
Future maturities of lease payments from customers:
2019 (remaining three months)
$
3
2020
10
2021
10
2022
10
2023
10
Thereafter
8
Total lease payments from customers
$
51

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(10)~~

~~(12)~~ Investment and Other Income (Loss):

The following is a summary of the components of Investment and Other Income (loss) for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:



	For the three months ended				For the nine months ended				For the three months ended
	September 30,				September 30,				March 31,

($ in millions)	2019		2018		2019		2018		2020		2019

Interest and dividend income	$	2	$	2	$	6	$	5	$	2	$	3
Pension and OPEB benefit (costs)		(12)		2		(34)		12		1		(11)
All other, net		-		(1)		-		(1)		2		(1)
Total investment and other income (loss), net	$	(10)	$	3	$	(28)	$	16	$	5	$	(9)

Pension and OPEB benefit (costs) consist of interest costs, expected return on plan assets, amortization of prior service costs (credit) and amortization of unrecognized (gain) loss. The driver of the change for the three months ended March 31, 2020 as compared to the prior year period, primarily relates to an increase in the expected return on plan assets combined with increased amortization of prior service credits.

~~(13)~~(12) Income Taxes:

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



	For the three months ended
	March 31,

	2020		2019

Consolidated tax provision at federal statutory rate	21.0	%	21.0	%
State income tax provisions, net of federal income
tax benefit	(1.2)		(3.2)
Tax reserve adjustment	(2.5)		(0.9)
Restructuring cost	(3.4)		-
Changes in certain deferred tax balances	0.6		(38.6)
Loss on disposal of Northwest Operations	(2.4)		-
Shared-based payments	(0.7)		(4.4)
Federal research and development tax credit	0.6		1.7
All other, net	(0.9)		(1.6)
Effective tax rate	11.1	%	(26.0)	%

CARES Act

The CARES Act has a number of beneficial tax provisions (e.g., deferral of the employer portion of social security taxes for the remainder of 2020, the ability to claim additional interest deductions, net operating loss carrybacks, and removal of the 80% usage limitation for post-2017 NOLs for tax years 2018, 2019 and 2020).

Employers can defer payment of the employer’s share of the Social Security tax that they otherwise are responsible for paying on wages. The deferral applies to affected taxes normally required to be paid from March 27, 2020, through December 31, 2020. The deferred tax must be paid over the following two years, with half to be paid by December 31, 2021, and the other half to be paid by December 31, 2022.

The business interest deduction limit under Code Sec. 163(j) is increased to 50 percent of the taxpayer’s adjusted taxable income (ATI) for the 2019 and 2020 tax years. A taxpayer may also elect for the 2020 year only to use

For the three months ended
For the nine months ended
September 30,
September 30,
2019
2018
2019
2018
Consolidated tax provision at federal statutory rate
21.0
%
21.0
%
21.0
%
21.0
%
State income tax provisions, net of federal income
tax benefit
(0.7)
0.8
1.3
0.4
Remeasurement of certain deferred tax balances
-
-
-
0.9
Tax reserve adjustment
(0.1)
0.5
-
0.5
Changes in certain deferred tax balances
(0.6)
(10.4)
(1.8)
(8.6)
Goodwill impairment
(15.9)
(10.4)
(10.7)
(10.3)
Loss on disposal of Northwest Operations
1.8
-
(1.2)
-
Shared-based payments
-
-
(0.1)
(0.8)
Federal research and development tax credit
0.3
(1.0)
-
(1.0)
All other, net
(0.2)
0.4
-
0.4
Effective tax rate
5.6
%
0.9
%
8.5
%
2.5
%

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

2019 ATI in calculating the limitation. A taxpayer may elect not to have the increased limitation apply in 2019 or 2020

Net operating losses (NOLs) arising in tax years beginning in 2018, 2019, and 2020 now have a five-year carryback period and an unlimited carryforward period. The provision limiting an NOL deduction attributable to NOLs arising in tax years beginning after 2017 to 80 percent of taxable income does not apply during these years.

As of ~~September 30,~~March 31, 2020 and December 31, 2019, amounts pertaining to expected income tax refunds of $2$13 million and $2$1 million are included in “Income taxes and other current ~~assets” and “Other~~ assets” in the consolidated balance sheets, respectively.

Frontier considered positive and negative evidence in regard to evaluating certain deferred tax assets during the ~~third~~first quarter of ~~2019,~~2020, including the development of recent years of pre-tax book losses. On the basis of this evaluation, a valuation allowance of ~~$141~~$54 million ($~~113~~43 million net of federal benefit) has been recorded for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, related to these deferred tax assets and reflected in “Changes in certain deferred tax balances.” The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

As of ~~December~~March 31, ~~2018,~~2020, Frontier had approximately ~~$2.4~~$2.2 billion of federal NOLs, which for U.S. federal income tax purposes can be used to offset future taxable income. The closing of the sale of the Northwest Operations would utilize approximately $1 billion of these NOLs.

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

~~(14)~~24

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(13) Net Loss Per Share:

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)
2019
2018
2019
2018
Net loss used for basic and diluted loss
per share:
Total basic net loss
attributable to Frontier common shareholders
$
(345)
$
(426)
$
(5,749)
$
(531)
Effect of loss related to dilutive stock units
-
-
-
-
Total diluted net loss
attributable to Frontier common shareholders
$
(345)
$
(426)
$
(5,749)
$
(531)
Basic loss per share:
Total weighted average shares and unvested restricted stock
awards outstanding - basic
105,372
105,740
105,375
88,997
Less: Weighted average unvested restricted stock awards
(1,237)
(2,075)
(1,344)
(1,859)
Total weighted average shares outstanding - basic
104,135
103,665
104,031
87,138
Basic net loss per share
attributable to Frontier common shareholders
$
(3.31)
$
(4.11)
$
(55.26)
$
(6.09)
Diluted loss per share:
Total weighted average shares outstanding - basic
104,135
103,665
104,031
87,138
Effect of dilutive stock units
-
-
-
-
Total weighted average shares outstanding - diluted
104,135
103,665
104,031
87,138
Diluted net loss per share
attributable to Frontier common shareholders
$
(3.31)
$
(4.11)
$
(55.26)
$
(6.09)



	For the three months ended
	March 31,

($ in millions and shares in thousands, except per share amounts)	2020		2019

Net loss used for basic and diluted loss
per share:
Total basic net loss
attributable to Frontier common shareholders	$	(186)	$	(87)
Effect of loss related to dilutive stock units		-		-
Total diluted net loss
attributable to Frontier common shareholders	$	(186)	$	(87)

Basic loss per share:
Total weighted average shares and unvested restricted stock
awards outstanding - basic		105,060		105,426
Less: Weighted average unvested restricted stock awards		(697)		(1,541)
Total weighted average shares outstanding - basic		104,363		103,885

Basic net loss per share
attributable to Frontier common shareholders	$	(1.78)	$	(0.84)

Diluted loss per share:
Total weighted average shares outstanding - basic		104,363		103,885
Effect of dilutive stock units		-		-
Total weighted average shares outstanding - diluted		104,363		103,885

Diluted net loss per share
attributable to Frontier common shareholders	$	(1.78)	$	(0.84)

In calculating diluted net loss per common share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 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,~~March 31, 2020 and 2019, ~~and 2018,~~ previously granted options to purchase 1,344 shares issuable under employee compensation plans were excluded from the computation of diluted earnings (loss) per share (EPS) for those periods because the exercise prices were greater than the average market price of our common stock and, therefore, the effect would be antidilutive.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Stock Units

At ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we had 339,544 and ~~299,827~~485,687 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 ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ because their inclusion would have an antidilutive effect. Compensation costs associated with the issuance of stock units were $0 ~~and $1~~ million for each of the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

~~(15)~~25

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(14) Stock Plans:

At ~~September 30, 2019,~~March 31, 2020, we have 7 stock-based compensation plans under which grants were made and awards remained outstanding. No further awards may be granted under 6 of the plans: the 1996 Equity Incentive Plan (the 1996 EIP), the Amended and Restated 2000 Equity Incentive Plan (the 2000 EIP), the 2009 Equity Incentive Plan (the 2009 EIP), the 2013 Equity Incentive Plan (the 2013 EIP), the Deferred Fee Plan and the Directors’ Equity Plan. At ~~September 30, 2019,~~March 31, 2020, there were approximately 5,667,000 shares authorized for grant and approximately ~~2,801,000~~3,437,000 shares available for grant under the 2017 Equity Incentive Plan (the 2017 EIP and together with the 1996 EIP, the 2000 EIP, the 2009 EIP and the 2013 EIPS, the EIPs).

Performance Shares

As of January 1, ~~2019,~~2020, we had ~~497,000~~96,000 outstanding performance shares under the Frontier Long Term Incentive Plan (the LTIP). ~~The following summary presents information regarding LTIP target~~During the three months ended March 31, 2020, all of the remaining performance shares ~~as of September 30, 2019 and changes during the nine months then ended with regard to LTIP shares awarded~~ under the ~~2013 EIP and the 2017 EIP~~:LTIP were cancelled.



			~~Number of~~
			~~Shares~~
			~~(in thousands)~~
	~~Balance at January 1, 2019~~		~~497~~
	~~LTIP target performance shares granted, net~~		-
	~~LTIP target performance shares earned~~		~~(41)~~
	~~LTIP target performance shares forfeited~~		~~(20)~~
	~~Balance at September 30, 2019~~		~~436~~

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~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we recognized net compensation expense, reflected in “Selling, general and administrative expenses,” of ~~$3 million for the LTIP.~~$0.

~~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, 2019~~March 31, 2020 and changes during the ~~nine~~three months then ended with regard to restricted stock granted under the 2013 EIP and the 2017 EIP:

Weighted
Average
Number of
Grant Date
Aggregate
Shares
Fair Value
Fair Value
(in thousands)
(per share)
(in millions)
Balance at January 1, 2019
1,858
$
16.02
$
4
Restricted stock granted
105
$
2.00
$
-
Restricted stock vested
(711)
$
21.78
$
(1)
Restricted stock forfeited
(19)
$
32.44
Balance at September 30, 2019
1,233
$
11.26
$
1



		Weighted
		Average
	Number of	Grant Date		Aggregate
	Shares	Fair Value		Fair Value
	(in thousands)	(per share)		(in millions)
Balance at January 1, 2020	900	$	10.57	$	1
Restricted stock granted	-	$	-	$	-
Restricted stock vested	(387)	$	15.04	$	-
Restricted stock forfeited	(14)	$	11.57
Balance at March 31, 2020	499	$	7.07	$	-

For purposes of determining compensation expense, the fair value of each restricted stock grant is estimated based on the closing price of a share of our common stock on the date of the grant. Total remaining unrecognized compensation cost associated with unvested restricted stock awards that is deferred at ~~September 30, 2019~~March 31, 2020 was $8$3 million, and the weighted average vesting period over which this cost is expected to be recognized is approximately 1 year.

We have granted restricted stock awards to employees in the form of our common stock. None of the restricted stock awards may be sold, assigned, pledged or otherwise transferred, voluntarily or involuntarily, by the employees until the restrictions lapse, subject to limited exceptions. The restrictions are time-based. Compensation expense, recognized in “Selling, general and administrative expenses,” of $7$1 million and ~~$10~~$3 million for the ~~nine~~three month periods ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, has been recorded in connection with these grants.

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(16)~~(15) Comprehensive Income (Loss):

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

The components of accumulated other comprehensive income (loss), net of tax at ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and changes for the ~~nine~~three month periods then ended, are as follows:



($ in millions)	Pension Costs		OPEB Costs		Total		Pension Costs		OPEB Costs		Total

Balance at January 1, 2019 ⁽¹⁾	$	(489)	$	26	$	(463)
Balance at January 1, 2020 ⁽¹⁾							$	(684)	$	34	$	(650)
Other comprehensive income (loss)
before reclassifications		-		-		-		1		-		1
Amounts reclassified from accumulated other
comprehensive loss to net loss		31		(6)		25		90		(5)		85
Net current-period other comprehensive
income (loss)		31		(6)		25		91		(5)		86
Impact of adoption of ASU 2018-02		(83)		4		(79)
Balance at September 30, 2019 ⁽¹⁾	$	(541)	$	24	$	(517)
Balance at March 31, 2020 ⁽¹⁾							$	(593)	$	29	$	(564)



($ in millions)	Pension Costs		OPEB Costs		Total		Pension Costs		OPEB Costs		Total

Balance at January 1, 2018 ⁽¹⁾	$	(345)	$	(21)	$	(366)
Balance at January 1, 2019 ⁽¹⁾							$	(489)	$	26	$	(463)
Other comprehensive income (loss)
before reclassifications		1		1		2		-		-		-
Amounts reclassified from accumulated other
comprehensive loss to net loss		38		(4)		34		10		(2)		8
Net current-period other comprehensive
income (loss)		39		(3)		36		10		(2)		8
Balance at September 30, 2018 ⁽¹⁾	$	(306)	$	(24)	$	(330)
Impact of adoption of ASU 2018-02								(83)		4		(79)
Balance at March 31, 2019 ⁽¹⁾							$	(562)	$	28	$	(534)

⁽¹⁾Pension and OPEB amounts are net of tax of ~~$250~~$204 million and ~~$223~~$250 million as of January 1, ~~2019~~2020 and ~~2018,~~2019, respectively and ~~$163~~$176 million and ~~$206~~$169 million as of ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

The significant items reclassified from each component of accumulated other comprehensive loss for the three ~~and nine~~ month periods ~~then~~ ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ are as follows:



										Amount Reclassified from
	Amount Reclassified from									Accumulated Other
	Accumulated Other Comprehensive Loss⁽¹⁾									Comprehensive Loss ⁽¹⁾
($ in millions)														Affected Line Item in
									Affected Line Item in	For the three months ended				the Statement Where
	For the three months ended				For the nine months ended				the Statement Where
Details about Accumulated Other	September 30,				September 30,				Net Loss	March 31,				Net Loss
Comprehensive Loss Components	2019		2018		2019		2018		is Presented	2020		2019		is Presented
Amortization of Pension Cost Items ⁽²⁾
Actuarial gains (losses)	$	(14)	$	(4)	$	(42)	$	(17)
Actuarial losses										$	(17)	$	(14)
Pension settlement costs		-		(9)		-		(34)			(103)		-
		(14)		(13)		(42)		(51)	Loss before income taxes		(120)		(14)	Loss before income taxes
Tax impact		4		2		11		13	Income tax benefit		30		4	Income tax benefit
	$	(10)	$	(11)	$	(31)	$	(38)	Net loss	$	(90)	$	(10)	Net loss

Amortization of OPEB Cost Items ⁽²⁾
Prior-service costs	$	3	$	1	$	7	$	6		$	8	$	1
Actuarial gains (losses)		(1)		-		1		(1)			(2)		2
		2		1		8		5	Loss before income taxes		6		3	Loss before income taxes
Tax impact		-		-		(2)		(1)	Income tax benefit		(1)		(1)	Income tax benefit
	$	2	$	1	$	6	$	4	Net loss	$	5	$	2	Net loss

⁽¹⁾ Amounts in parentheses indicate losses.

⁽²⁾ These accumulated other comprehensive loss components are included in the computation of net periodic pension and OPEB costs (see Note 17 - Retirement Plans for additional details).

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(17)~~(16) Retirement Plans:

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



	Pension Benefits								Pension Benefits
	For the three months ended				For the nine months ended				For the three months ended
	September 30,				September 30,				March 31,

($ in millions)	2019		2018		2019		2018		2020		2019

Components of total pension benefit cost
Service cost	$	21	$	22	$	63	$	70	$	25	$	21
Interest cost on projected benefit obligation		33		31		98		91		30		33
Expected return on plan assets		(43)		(45)		(129)		(143)		(50)		(43)
Amortization of unrecognized loss		14		4		42		17		17		14
Net periodic pension benefit cost	$	25	$	12	$	74	$	35		22		25
Pension settlement costs		-		9		-		34		103		-
Total pension benefit cost	$	25	$	21	$	74	$	69	$	125	$	25


	Postretirement Benefits								Postretirement Benefits
	For the three months ended				For the nine months ended				For the three months ended
	September 30,				September 30,				March 31,

($ in millions)	2019		2018		2019		2018		2020		2019

Components of net periodic postretirement benefit cost
Service cost	$	4	$	5	$	14	$	16	$	5	$	5
Interest cost on projected benefit obligation		10		9		31		28		8		10
Amortization of prior service cost (credit)		(3)		(1)		(7)		(6)		(8)		(1)
Amortization of unrecognized (gain) loss		1		-		(1)		1		2		(2)
Net periodic postretirement benefit cost	$	12	$	13	$	37	$	39	$	7	$	12

The components of net periodic benefit cost other than the service cost component are included in “Investment and other income” in the consolidated statement of operations.

The pension plan contains provisions that provide certain employees with the option of receiving a lump sum payment upon retirement. Frontier’s accounting policy is to record these payments as a settlement only if, in the aggregate, they exceed the sum of the annual service and interest costs for the Pension Plan’s net periodic pension benefit cost. During the three months ended March 31, 2020, lump sum pension settlement payments to terminated or retired individuals amounted to $310 million, which exceeded the settlement threshold of $211 million, and as a result, Frontier recognized non-cash settlement charges totaling $103 million during the first quarter of 2020. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial losses in the Pension Plan. These non-cash charges increased our recorded net loss and accumulated deficit, with a corresponding adjustment offset to accumulated other comprehensive loss in stockholders’ equity.

During the first ~~nine~~three months of ~~2019~~2020 and ~~2018,~~2019, we capitalized ~~$18~~$7 million and ~~$20~~$6 million, respectively, of pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities.

Our Pension Plan assets ~~increased~~decreased from ~~$2,348~~$2,730 million at December 31, ~~2018~~2019 to ~~$2,670~~$2,166 million at ~~September 30, 2019, an increase~~March 31, 2020, a decrease of ~~$322~~$564 million, or ~~14%~~21%. This ~~increase~~decrease was a result of ~~contributions~~benefit payments of ~~$129~~$327 million and ~~positive~~ investment ~~returns~~losses (net of investment management and administrative fees) of ~~$404~~$274 million, partially offset by ~~benefit payments~~contributions of ~~$211~~$37 million.

~~Required pension plan contributions for the full year 2019 are estimated to be $166 million, of which $129 million was contributed to the Plan during the first nine months of 2019.~~

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Required pension plan contributions for the full year 2020 are estimated to be $190 million, of which $37 million was contributed to the Plan during the first three months of 2020. Certain provisions of the CARES Act permit employers to postpone making pension contributions due in 2020 until January 1, 2021. Frontier intends to postpone the remaining 2020 contributions of approximately $153 million, in the aggregate, until on or prior to January 1, 2021 as permitted by the CARES Act.

~~(18)~~(17) Commitments and Contingencies:

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

In ~~June~~ 2015, Frontier accepted the ~~Federal Communications Commission’s (FCC) offer of support to price cap carriers under the Connect America Fund (CAF)~~FCC’s CAF Phase II ~~program,~~offer in 29 states, which ~~is intended to provide support for broadband in high cost unserved or underserved areas. This program~~ provides $332 million in annual support ~~including~~through 2020 (since extended to 2021 under the Rural Digital Opportunity Fund (RDOF) Order) in return for the Company’s commitment to make broadband available to approximately 774,000 locations within Frontier’s footprint. This amount includes approximately $19 million in ~~annual support related to~~the 4 states of the Northwest ~~Operations, through 2020~~Operations. The CAF Phase II program is intended to ~~make available~~provide long-term support for carriers for establishing and providing broadband service with at least 10 Mbps downstream/1 Mbps upstream broadband service to approximately 774,000 households across certain of the 29 states where we now operate. To the extent we do not enable the required number of households with 10 Mbps downstream/1 Mbps upstream broadband service by the end of thespeeds in high-cost unserved or underserved areas. CAF Phase II ~~term, we will be required~~support is a successor to ~~return a portion of~~ the ~~funds previously received.~~approximately $198 million in annual USF frozen high-cost support that Frontier used to receive prior to CAF II.

In August 2019, the FCC adopted a notice of proposed rulemaking to establish the ~~Rural Digital Opportunity Fund (RDOF),~~RDOF, which will be the successor to the CAF II program. While the RDOF has not been finalized, its final form could result in a material change in the level of annual funding that Frontier receives from the FCC under CAF II as early as ~~2021.~~2022.

On April 20, 2017, the FCC issued an Order that significantly altered how Commercial Data Services are regulated. Specifically, the Order adopted a test to determine, on a county-by-county basis, whether price cap ILECs, like Frontier’s DS1 and DS3 services, will continue to be regulated. The test resulted in deregulation in a substantial number of our markets and is allowing Frontier to offer its DS1 and DS3 services in a manner that better responds to the competitive marketplace and allows for commercial negotiation. The areas that remain regulated may be subject to price fluctuations depending upon the price cap formula that year. Multiple parties appealed the Order in the 8th Circuit Court of Appeals. The Court of Appeals issued a ruling August 28, 2018, which upheld the vast majority of the FCC’s decision easing regulation of business data services of internet service providers and vacated and remanded one part of the Order back to the FCC. On October 10, 2018, the FCC filed a Motion to Stay the Court’s Decision. Frontier cannot predict the extent to which these regulatory changes could affect revenues at this time. On July 10, 2019, the FCC issued an Order reinstating its original decision regarding transport that was remanded by the 8th Circuit due to lack of notice. While this Order cures the lack of notice cited by the 8th Circuit, Frontier cannot predict whether parties may again appeal the decision.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Company in Connecticut, California, and Delaware courts. The derivative complaints are based, generally, on the same facts asserted in the consolidated class action complaint and allege against current and former officers and directors of the Company (i) breach of fiduciary duty claims for disseminating false and misleading information to shareholders, failure to manage internal controls, and failure to oversee and manage the company; (ii) unjust enrichment and waste of corporate assets claims; and (iii) violations of Section 14(a) of the Exchange Act for

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

the false and misleading statements. We also dispute the allegations in the derivative complaints described above and intend to vigorously defend against such claims. Given that all of these matters are in the early stages of litigation, we are unable to estimate a reasonably possible range of loss, if any, that may result.

We are currently defending an intellectual property lawsuit initiated by Sprint Communications which alleges that the VoIP services that we offer to our customers infringe on certain of the plaintiff’s patents. Sprint has asserted these claims against other broadband providers and obtained significant judgements and settlements. While we intend to defend this lawsuit vigorously, we cannot at this time predict the outcome of this lawsuit or reasonably estimate a possible range of loss.

In addition, we are party to various legal proceedings (including individual actions, class and putative class actions, and ~~federal and state~~ governmental investigations) arising in the normal course of our business covering a wide range of matters and types of claims including, but not limited to, general contract disputes, billing disputes, rights of access, taxes and surcharges, consumer protection, advertising, sales and the provision of services, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers. ~~Legal proceedings and litigation are~~Litigation is subject to uncertainty and the outcome of individual matters is not predictable. However, we believe that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

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

We accrue an expense for pending litigation when we determine that an unfavorable outcome is probable, and the amount of the loss can be reasonably estimated. Legal defense costs are expensed as incurred. None of our existing accruals for pending matters, after considering insurance coverage, is material. We monitor our pending litigation for the purpose of adjusting our accruals and revising our disclosures accordingly, when required. Litigation is, however, subject to uncertainty, and the outcome of any particular matter is not predictable. We will vigorously defend our interests in pending litigation, and as of this date, we believe that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our consolidated financial position, results of operations, or our cash flows.

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

We are party to contracts with several unrelated long-distance carriers. The contracts provide fees based on traffic they carry for us subject to minimum monthly fees.

‎

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Effect of Automatic Stay

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

(18) Subsequent Events:

Restructuring Support Agreement

On April 14, 2020, the Company Parties entered into the Restructuring Support Agreement with the Consenting Noteholders. The Restructuring Support Agreement contemplates agreed-upon terms for a pre-arranged financial restructuring Plan that leaves unimpaired all general unsecured creditors and holders of secured debt.

Under the Restructuring Support Agreement, the Consenting Noteholders have agreed, subject to certain terms and conditions, to support the Restructuring of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to the Plan to be filed in the Chapter 11 Cases.

The Plan will be based on the restructuring term sheet attached to and incorporated into the Restructuring Support Agreement (the Term Sheet) (such transactions described in, and in accordance with the Restructuring Agreement and the Term Sheet, the Restructuring Transactions), which, among other things, contemplates:

the Company Parties’ obtaining confirmation of the Plan, which shall be on terms consistent with the Restructuring Support Agreement and the Term Sheet, no later than 120 calendar days after the Petition Date (as defined herein);

the Company Parties using commercially reasonable efforts to obtain commitments on the best available terms for a senior secured superpriority debtor-in-possession financing facility (the DIP Facility), with an option for conversion into an Exit Facility (as defined below) on the Plan effective date (Plan Effective Date), on terms and conditions (including as to amount) reasonably acceptable to the Company Parties and reasonably acceptable to the Consenting Noteholders, as of the relevant date, holding greater than 50.1% of the aggregate outstanding principal amount of the Frontier Communications Corporation’s senior unsecured notes and debentures (the Senior Notes) that are subject to the Restructuring Support Agreement (the Required Consenting Noteholders);

one or more third-party debt facilities (Exit Facilities), to be entered into on the Plan Effective Date, in an amount reasonably sufficient to facilitate Plan distributions and ensure incremental liquidity on the Plan Effective Date, and otherwise be on terms and conditions (including as to amount) reasonably acceptable to the Company Parties and reasonably acceptable to the Required Consenting Noteholders;

to the extent not converted into an Exit Facility, full satisfaction in cash on the Plan Effective Date of all DIP Facility claims;

issuance by one or more of the Company Parties of takeback debt (the Takeback Debt), in a principal amount of $750 million, subject to downward adjustment and certain other terms set forth in the Term Sheet, including, but not limited to:

oan interest rate (a) no more than 250 basis points higher than the interest rate of the next more junior secured debt facility to be entered into on the Plan Effective Date if the Takeback Debt is secured on a third lien basis or (b) no more than 350 basis points higher than the interest rate of the

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

most junior secured debt facility to be entered into on the Plan Effective Date if the Takeback Debt is unsecured;

oa maturity no less than one year outside of the longest-dated debt facility to be entered into on the Plan Effective Date, subject to an outside maturity date of eight years from the Plan Effective Date;

o(i) to the extent the Second Lien Notes are reinstated under the Plan, providing the Takeback Debt will be third lien debt, or (ii) to the extent the Second Lien Notes are paid in full in cash during the pendency of the Chapter 11 Cases or under the Plan, providing the Company Parties and the Required Consenting Noteholders will agree on whether the Takeback Debt will be secured or unsecured, subject to certain conditions; and

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

subject to acceptance of the Plan by the holders of the Senior Notes, a cash payment (the Incremental Payments) on the Plan Effective Date to each holder of the Senior Notes (to the extent of the available amount of unrestricted balance sheet cash in excess of $150 million on the Plan Effective Date as projected 30 days prior to the anticipated Plan Effective Date, subject to adjustments set forth in the Term Sheet (Surplus Cash));

cash interest payments for the Revolver and, to the extent not already satisfied in full during the Chapter 11 Cases from the proceeds of the DIP Facility, satisfaction in full on the Plan Effective Date of all Revolver claims;

cash interest payments for (i) the Term Loan B maturing on June 15, 2024, and (ii) the $1,650 million aggregate principal amount of the First Lien Notes, as applicable, at non-default rate during the Chapter 11 Cases, which shall not include any make-whole payments, until repayment or reinstatement of such indebtedness;

upon mutual agreement among the Company Parties and the Required Consenting Noteholders, for the $1,600 million aggregate principal amount of the Second Lien Notes (together with the First Lien Notes, the Secured Notes), (i) cash interest payment at non-default rate during the Chapter 11 Cases, which shall not include any make-whole payments, until repayment or reinstatement of the Second Lien Notes or (ii) payment of accrued non-default rate interest on the Plan Effective Date, which shall not include any make-whole payments, and no cash interest payment during the Chapter 11 Cases;

to the extent not already satisfied in full during the Chapter 11 Cases from the proceeds of the DIP Facility, (i) satisfaction in full of all Term Loan B claims and all Secured Notes claims on the Plan Effective Date, or (ii) solely in the event the Company Parties cannot procure financing on terms acceptable to the Company Parties and the Required Consenting Noteholders to repay in full the Term Loan B or the Secured Notes, as applicable, reinstatement of all Term Loan B claims and all Secured Notes claims, as applicable, pursuant to section 1124 of the Bankruptcy Code on the Plan Effective Date;

cash interest payments at non-default rate during the Chapter 11 Cases for the secured and unsecured notes of the Company’s subsidiaries and, on or as soon as reasonably practicable following the Plan Effective Date, reinstatement of such notes pursuant to section 1124 of the Bankruptcy Code;

cash payment of all general unsecured claims (other than Parent Litigation Claims (as defined below)), if applicable, that are not Senior Notes claims or subsidiary unsecured notes claims, reinstatement of such claims pursuant to section 1124 of the Bankruptcy Code or other such treatment rendering such claims unimpaired, in each case, as reasonably acceptable to the Company Parties and the Required Consenting Noteholders;

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

that the Parent Litigation Claims will be allowed in an amount that does not exceed existing insurance coverage plus $25 million;

cash payment in full of all administrative expense claims, priority tax claims, other priority claims, and other secured claims or other such treatment rendering such claims unimpaired, including reinstatement pursuant to section 1124 of the Bankruptcy Code or delivery of the collateral securing any such secured claim and payment of any interest required under section 506(b) of the Bankruptcy Code;

a motion, promptly after the commencement of the Chapter 11 Cases, filed by the Company Parties to assume the Purchase Agreement (the Purchase Agreement), dated as of May 28, 2019, among the Company, Frontier Communications ILEC Holdings LLC, and Northwest Fiber, LLC, as amended, restated, amended and restated, or otherwise modified from time to time, and close the sale of the Northwest Operations subject to certain terms and conditions in the Purchase Agreement, as soon as reasonably practicable;

on or as soon as reasonably practicable following the Plan Effective Date, receipt by the holders of the Senior Notes, in full satisfaction of their claims, their pro rata share of (a) 100% of the common equity (the New Common Stock) of the Company or an entity formed to indirectly acquire substantially all of the assets and/or stock of the Company as may be contemplated by the Restructuring (the Reorganized Company), subject to dilution by the Management Incentive Plan (as defined below), (b) the Takeback Debt and (c) any Surplus Cash remaining after payments of the Incremental Payments;

on the Plan Effective Date, reservation of a pool (the Management Incentive Plan Pool) of 6% (on a fully diluted basis) of the New Common Stock for a post-emergence management incentive plan (the Management Incentive Plan) for management employees of the Reorganized Company, which will contain terms and conditions as determined at the discretion of the board of directors of the Reorganized Company after the Plan Effective Date; provided that up to 50% of the Management Incentive Plan Pool may be allocated prior to the Plan Effective Date as emergence grants (Emergence Awards) to individuals selected to service in key senior management positions after the Plan Effective Date; provided, further, that the Emergence Awards will have terms and conditions that are acceptable to the Company Parties and the Required Consenting Noteholders;

no distribution for existing equity interests; and

in the event the Required Consenting Noteholders and the Company Parties determine that the New Common Stock should be listed on a recognized U.S. stock exchange, commercially reasonable efforts by the Reorganized Company to have the New Common Stock listed on a recognized U.S. stock exchange as promptly as reasonably practicable on or after the Plan Effective Date, and prior to any such listing, commercially reasonable efforts to qualify its shares for trading in the pink sheets.

In accordance with the Restructuring Support Agreement, the Consenting Noteholders agreed, among other things, to: (i) support the Restructuring Transactions as contemplated by, and within the timeframes outlined in, the Restructuring Support Agreement and the definitive documents governing the Restructuring Transactions; (ii) not take any action, directly or indirectly, that is reasonably likely to interfere with acceptance, implementation, or consummation of the Restructuring Transactions; (iii) vote each of its Senior Notes Claims to accept the Plan; and (iv) not transfer Senior Notes Claims held by each Consenting Noteholders except with respect to limited and customary exceptions, including requiring any transferee to either already be bound or become bound by the terms of the Restructuring Support Agreement.

In accordance with the Restructuring Support Agreement, the Company Parties agreed, among other things, to: (i) support and take all steps reasonably necessary and desirable to consummate the Restructuring Transactions in accordance with the Restructuring Support Agreement; (ii) support and take all steps reasonably necessary and desirable to obtain entry of (a) the final orders of the Bankruptcy Court authorizing the relevant Company Parties’ entry into the DIP Facility documents (the DIP Orders), (b) the order of the Bankruptcy Court approving the Plan disclosure statement pursuant to section 1125 of the Bankruptcy Code and (c) the Bankruptcy Court’s order confirming the Plan; (iii) use commercially reasonable efforts to obtain any and all required governmental, regulatory and/or third-party approvals for the Restructuring Transactions; (iv) act in good faith and use commercially reasonable efforts to execute and deliver certain required documents and agreements to effectuate and consummate the Restructuring Transactions as contemplated

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

by the Restructuring Support Agreement; (v) operate their business in the ordinary course of business in a manner consistent with the Restructuring Support Agreement and past practice and use commercially reasonable efforts to preserve their business; and (vi) not, directly or indirectly, object to, delay, impede, or take any other action to interfere with acceptance, implementation, or consummation of the Restructuring Transactions.

The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including the failure to meet specified milestones related to the solicitation of votes to approve the Plan, commencement of the Chapter 11 Cases, confirmation of the Plan, consummation of the Plan, and the entry of orders relating to the DIP Facility.

Chapter 11 Cases

To implement the Plan, on the Petition Date, the Company Parties filed the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court. Each Company Party will continue to operate its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476 (RDD). Documents filed on the docket of and other information related to the Chapter 11 Cases are available at https://cases.primeclerk.com/ftr. Documents and other information available on such website are not part of this document and shall not be deemed incorporated by reference in this document.

To ensure the Company Parties’ ability to continue operating in the ordinary course of business and minimize the effect of the Restructuring on the Company Parties’ customers and employees, the Company Parties filed with the Bankruptcy Court motions seeking a variety of “first-day” relief, including authority to pay employee wages and benefits, and pay vendors and suppliers for all goods and services, each of which was approved on an interim basis by the Bankruptcy Court.

Effect of Chapter 11 Cases & Automatic Stay on Pre-Petition Debt Obligations

DIP Facility

On April 14, 2020 and prior to the commencement of the Chapter 11 Cases, the Company and certain of its subsidiaries (the DIP Loan Parties) entered into a commitment letter (the Commitment Letter) with Goldman Sachs Bank USA (GS Bank), Deutsche Bank AG New York Branch (DBNY), Deutsche Bank Securities Inc. (DBSI and, collectively with DBNY, DB), Barclays Bank PLC (Barclays), Morgan Stanley Senior Funding, Inc. (MSSF), Credit Suisse AG, Cayman Islands Branch (CS) and Credit Suisse Loan Funding LLC (CSLF and, together with CS and their respective affiliates, Credit Suisse, and together with GS Bank, DB, Barclays and MSSF, the Commitment Parties), pursuant to which, and subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court, the Commitment Parties have agreed to provide the DIP Loan Parties with a senior secured superpriority debtor-in-possession revolving credit facility (the DIP Revolving Facility) in an aggregate principal amount of $460 million which, upon satisfaction of certain conditions, including the effectiveness of the Plan, will become a longer term senior secured exit revolving facility (the Exit Revolving Facility).

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

following the first day on which the Company has received both (x) the net cash proceeds of the sale of the Northwest Operations and (y) an order of the Bankruptcy Court approving the repayment in full of the outstanding revolving loans under the JPM Credit Agreement. The occurrence of the Prepayment Event of Default would cause the termination of the commitments with respect to the Exit Revolving Facility unless otherwise agreed by each Commitment Party. The proceeds of all or a portion of the DIP Revolving Facility may be used for, among other things, general corporate purposes, including working capital and permitted acquisitions and letters of credit, administrative costs, premiums, expenses and fees of the transactions contemplated by the Chapter 11 Cases, for payment of court approved adequate protection obligations and other such purposes consistent with the DIP Revolving Facility. To the extent not converted into an Exit Revolving Facility, DIP Revolving Facility claims will be paid in cash on the Plan Effective Date. The terms and conditions of the Exit Revolving Facility are reflected in an exit facility term sheet attached as an exhibit to the Form DIP Credit Agreement (the Exit Facility Term Sheet). Upon of the satisfaction of certain conditions set forth in the Exit Facility Term Sheet, including compliance with a 1.55:1.00 gross first lien leverage ratio test and the repayment in full of the revolving loans outstanding under the JPM Credit Agreement, the DIP Revolving Facility commitments will become Exit Revolving Facility commitments. The Company has the option to increase the size of the Exit Revolving Facility up to an amount of $600.0 million by obtaining commitments from one or more lenders prior to the Plan Effective Date.

Notice of Delisting

On April 15, 2020, the Company received a letter from the listing qualifications department staff of the Nasdaq Stock Market (Nasdaq) notifying the Company that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq determined that Frontier common stock would be delisted from Nasdaq. We did not appeal Nasdaq's delisting determination. Accordingly, Nasdaq suspended trading of the Company's common stock on April 24, 2020, and filed a Form 25-NSE with the SEC to delist the common stock. On April 24, 2020, after our common stock was suspended by Nasdaq, it began being quoted on the OTC Bulletin Board or “pink sheets” market of the OTC Markets Group Inc. under the symbol "FTRCQ.”

Northwest Operations Sale Closing

On May 1, 2020, Frontier completed the sale of its Northwest Operations pursuant to the terms and conditions of the Purchase Agreement, dated as of May 28, 2019, for gross proceeds of $1,352 million, subject to certain closing adjustments. Net of funding certain pension and other retiree medical liabilities, funding certain escrows and other closing adjustments, we received $1,131 million in proceeds. The sale had been previously approved by the Bankruptcy Court on April 24, 2020. In connection with the sale, Frontier has entered into a transition services agreement with the purchaser to provide various network and support services for a minimum of six months following the transaction closing.

‎

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Forward-Looking Statements

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

our ability to continue as a going concern;

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

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

ability to make the required payments under the agreements governing our current debt obligations;

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

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

risks and uncertainties associated with the Restructuring, including our ability to receive approvals for debtor-in-possession financing, obtain confirmation of the Plan under the Chapter 11 Cases and successfully consummate the Restructuring;

our substantial level of indebtedness and related debt service obligations and restrictions, including those expected to be imposed by covenants in debtor-in-possession and exit financing, that may limit our operational and financial flexibility, including our ability to make payments on our debt;

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

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

~~Frontier’s~~our ability to ~~repay or refinance its~~effectively manage our operations, operating expenses, capital expenditures, debt ~~through, among other things, accessing the capital markets, notes repurchases and/or redemptions, tender offers~~service requirement and ~~exchange offers;~~

~~adverse changes in the ratings given to Frontier’s debt securities by nationally accredited ratings organizations;~~

~~covenants in Frontier’s indentures~~cash paid for income taxes and ~~credit agreements that may limit Frontier’s operational and financial flexibility as well as its ability to access the capital markets in the future;~~

~~adverse changes in the credit markets, which could impact the availability and cost of financing;~~liquidity;

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

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

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

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

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

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

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

our ability to hire or retain key personnel;

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

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

our ability to ~~effectively manage~~meet our ~~operations, operating expenses, capital expenditures, debt service~~CAF II obligations and ~~vendor requirements and cash paid for income taxes and liquidity;~~the risk of penalties or obligations to return certain CAF II funds;

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

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

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

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

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

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

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

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

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

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

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

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

the effects of changes in accounting policies or practices, including ~~the impact of~~ potential future impairment charges with respect to our intangible assets or additional losses on assets held for sale;

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

our ability to successfully renegotiate union contracts;

changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of our pension plan assets, which could require us to make increased contributions to the pension plan in ~~2019~~2020 and beyond;

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

the effects of ~~changes in both general and local~~weak economic conditions inand market disruptions, including the ~~markets that we serve;~~impact of the ongoing COVID-19 pandemic; and

risks arising from the ~~risks and other factors contained in~~delisting of our ~~most recent Form 10-K, Form 10-Q for~~common stock from the ~~quarter ended June 30, 2019, and other filings with the SEC.~~Nasdaq Global Select Market.

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

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

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

‎

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

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

Overview

Frontier Communications Corporation (Frontier) is a provider of communications services in the United States, with approximately ~~4.2~~4.1 million customers, ~~3.6~~3.5 million broadband subscribers and ~~approximately 19,100~~17,400 employees, operating in 29 ~~states.~~states as of March 31, 2020. We offer a broad portfolio of communications services for consumer and commercial customers. These services which include data and ~~Internet~~internet services, video services, voice services, access services, and advanced hardware and network solutions, are offered on either a standalone basis or in a bundled package, depending on each customer’s needs.

~~During~~On May 1, 2020, Frontier completed the ~~second quarter of 2019, Frontier announced the planned~~ sale of its ~~operations and all associated assets in Washington, Oregon, Idaho, and Montana (Northwest Operations)~~Northwest Operations for gross proceeds of $1,352 million, subject to certain ~~adjustments for working capital and~~closing adjustments. Net of funding certain pension and other retiree medical ~~liabilities.~~liabilities, funding certain escrows and other closing adjustments, we received $1,131 million in proceeds. Revenues for the Northwest Operations represented approximately 7% of consolidated ~~sales~~revenue for ~~each~~the year ended December 31, 2019.

During the first quarter of 2020, Frontier reported operating income of $272 million and a net loss of $186 million. This compares to operating income of $339 million and a net loss of $87 million reported in the ~~three~~first quarter of 2019. We have continued to experience net losses in customers (1% in the first quarter of 2020 compared to 2% in the first quarter of 2019), which have contributed to lower revenues and ~~nine months ended September 30, 2019, respectively. The sale is expected~~lower profitability. Our results reflect a pension settlement charge of $103 million, compared to ~~close~~no charge during the first ~~half~~quarter of 2019, and, $48 million of restructuring and other charges (including $38 million of charges related to advisors and consultants associated with the restructuring of our balance sheet), compared to $28 million for the first quarter of 2019. Our operating results for the three months ended March 31, 2020 also include a $24 million loss related to the planned sale our Northwest Operations described above.

We are highly leveraged, and a substantial portion of our liquidity needs will arise from debt service on our outstanding indebtedness and from funding the costs of operations, working capital and capital expenditures. As of March 31, 2020, we believe our operating cash flows, existing cash balances, and cash proceeds from the sale of our Northwest Operations will be adequate to finance our working capital requirements, fund capital expenditures, make required debt interest and principal payments, pay taxes and support our short-term and long-term operating strategies for the next twelve months. However, as discussed elsewhere in this Form 10-Q, our ability to continue as a going concern is contingent upon, among other things, our ability to successfully emerge from the Chapter 11 Cases (as defined below) and generate sufficient liquidity from the Restructuring (as defined below) to meet our obligations and operating needs. Our $850 million revolving credit facility is fully utilized as of the date of filing and our access to capital and debt markets may be limited. A number of factors, including but not limited to, losses of customers, pricing pressure from increased competition, lower subsidy and switched access revenues, and the impact of economic conditions may negatively affect our cash generated from operations.

Recent Developments

Restructuring Support Agreement and Chapter 11 Cases

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476 (RDD).

See “—(b) Liquidity and Capital Resources— Subsequent Events Related to the Restructuring Support Agreement and the Chapter 11 Cases” and Note 18 of the Notes to Consolidated Financial Statements for more information on the Restructuring. Refer to “—Going Concern” and Note 1 of the Notes to Consolidated Financial Statements for further discussion of the Company’s ability to continue as a going concern and Note 9 for further detail of our debt obligations as of and for the quarter ended March 31, 2020.

Going Concern

In connection with the preparation of our interim unaudited consolidated financial statements, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the Company’s ability to continue as a going concern. As reflected in our interim unaudited consolidated financial statements, the Company had cash and cash equivalents of $941 million and an accumulated deficit of $8,759 million as of March 31, 2020. The Company also had operating income of $272 million and a net loss of $186 million for the three months ended March 31, 2020.

As disclosed in “—Restructuring Support Agreement and Chapter 11 Cases,”on April 14, 2020, the Company Parties entered into the Restructuring Support Agreement and filed the Chapter 11 Cases.

Our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the Bankruptcy Court’s approval, implement the Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet our obligations and operating needs. As a result of risks and uncertainties related to (i) the Company’s ability to obtain requisite support for the Plan from various stakeholders, (ii) the effects of disruption from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, together with the Company’s recurring losses from operations and accumulated deficit, substantial doubt exists regarding our ability to continue as a going concern.

See Note 1 of the Notes to Consolidated Financial Statements for further discussion of the Company’s ability to continue as a going concern See “—(b) Liquidity and Capital Resources” and Note 18 of the Notes to Consolidated Financial Statements for more information on the Restructuring and our limited liquidity.

Impact of COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the highly contagious and lethal corona virus outbreak a global pandemic (COVID-19) and recommended containment and other mitigation measures worldwide to lessen the transmission of COVID-19. In the first quarter of 2020, ~~subject~~governments from around the world, including the United States federal government as well as state and local governments have reacted to ~~customary closing conditions~~this public health crisis, imposing travel restrictions and restrictions on large gatherings of people, which includes school and non-essential business closures. The rapid spread of COVID-19 and the drastic responses being taken to curb its spread have resulted in a significant negative impact to the global and domestic economies, which will increase the longer these limitations are in place. In an effort to reduce the economic impacts of COVID-19, The United States federal government has responded with multiple stimulus bills, including ~~regulatory approvals.~~the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the largest economic stimulus legislation in American history. Despite these efforts, the short-term and long-term impacts of COVID-19 cannot be determined.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

as well as the uncertainty of funding available for services provided, the impact of these changes and potential changes on the Company are unknown at this time.

In addition to committing to the Keep Americans Connected Pledge, Frontier’s response to COVID-19 includes limiting our product offerings to those that do not require a field service employee to enter a customer’s home and directing most non-field service employees to work from home. Thus far only a few of Frontier’s employees have tested positive for COVID-19. Through March 31, 2020, we had not experienced any disruptions in our supply chain; however, some of our business partners, particularly those operating outside of the United States, have been more greatly impacted which has affected our service levels and distribution of work.

While overall the operational and financial impact to Frontier of the COVID-19 pandemic for the three months ended March 31, 2020 were not significant, we continue to closely monitor the ongoing impact to our employees, our customers, our business and our results of operations. . For example, we have experienced a slowdown in service activations and an increase in deactivations for our SMB customers; however, these negative impacts have been partially offset, by higher residential activations and lower churn. While we haven’t noticed any meaningful changes in our customers’ payment behaviors, we continue to closely monitor as any changes could have a material financial impact to Frontier. With more people working from home, we have experienced higher demands on our network and higher sales activity for our residential broadband service offering. We have not experienced any significant disruptions in our service through March 31, 2020; however, a sustained increase in network demand that we have experienced could lead to reduced network availability and potential outages, which may impair our ability to meet customer service level commitments, lead to higher costs, higher customer churn and potential increased regulatory actions.

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

‎

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

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

The following section should be read in conjunction with the unaudited interim consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

(a)Results of Operations

CUSTOMER RELATED METRICS

As of or for the three months ended
September 30, 2019
December 31, 2018
% Increase (Decrease)
September 30, 2018
% Increase (Decrease)
Customers (in thousands)
4,193
4,471
(6)
%
4,574
(8)
%
Consumer customer metrics
Customers (in thousands)
3,812
4,060
(6)
%
4,152
(8)
%
Net customer additions (losses)
(90)
(92)
(2)
%
(86)
5
%
Average monthly consumer
revenue per customer
$
88.45
$
88.37
0
%
$
84.92
4
%
Customer monthly churn
2.24%
1.94%
15
%
2.03%
10
%
Commercial customer metrics
Customers (in thousands)
381
411
(7)
%
422
(10)
%
Broadband subscriber metrics
(in thousands)
Broadband subscribers
3,555
3,735
(5)
%
3,802
(6)
%
Net subscriber additions (losses)
(71)
(67)
6
%
(61)
16
%
Video (excl. DISH) subscriber metrics
(in thousands)
Video subscribers (in thousands)
698
838
(17)
%
873
(20)
%
Net subscriber additions (losses)
(40)
(35)
14
%
(29)
38
%
DISH subscriber metrics
(in thousands)
DISH subscribers (in thousands)
181
205
(12)
%
211
(14)
%
Net subscriber additions (losses)
(9)
(6)
50
%
(8)
13
%
Employees
19,132
21,173
(10)
%
21,375
(10)
%
As of or for the nine months ended
September 30, 2019
September 30, 2018
% Increase (Decrease)
Consumer customer metrics
Average monthly consumer
revenue per customer
$
88.79
$
85.54
4
%
Customer monthly churn
2.12%
2.03%
4
%


	As of or for the three months ended
	March 31, 2020		December 31, 2019		% Increase (Decrease)		March 31, 2019		% Increase (Decrease)

Customers (in thousands)		4,063		4,118	(1)	%		4,395	(8)	%

Consumer customer metrics
Customers (in thousands)		3,703		3,747	(1)	%		3,995	(7)	%
Net customer additions (losses)		(44)		(65)	(32)	%		(65)	(32)	%
Average monthly consumer
revenue per customer	$	86.93	$	88.40	(2)	%	$	89.14	(2)	%
Customer monthly churn		1.81%		1.93%	(6)	%		1.99%	(9)	%

Commercial customer metrics
Customers (in thousands)		360		371	(3)	%		400	(10)	%

Broadband subscriber metrics
(in thousands)
Broadband subscribers		3,480		3,513	(1)	%		3,697	(6)	%
Net subscriber additions (losses)		(33)		(42)	(21)	%		(38)	(13)	%

Video (excl. DISH) subscriber metrics
(in thousands)
Video subscribers (in thousands)		621		660	(6)	%		784	(21)	%
Net subscriber additions (losses)		(39)		(38)	3	%		(54)	(28)	%

DISH subscriber metrics
(in thousands)
DISH subscribers (in thousands)		165		173	(5)	%		198	(17)	%
Net subscriber additions (losses)		(8)		(8)	-	%		(7)	14	%

Employees		17,437		18,317	(5)	%		20,439	(15)	%

Customer Trends and Revenue Performance

We provide service and product options in our consumer and commercial offerings in each of our markets.

Consumer Customers

For the three months ended March 31, 2020, Frontier lost 44,000, or 1%, of our consumer customers compared to 65,000, or 2% for the three months ended March 31, 2019. As of ~~September 30, 2019, 58%~~March 31, 2020, 54% of our consumer broadband customers also subscribed to at least one other service offering.

We ~~had approximately 3.8 million and 4.2 million total~~lost 1% of our consumer ~~customers~~broadband subscribers, primarily to competitors offering more attractive pricing or higher speeds. We experienced a 6% decline in our video subscribers primarily as of September 30, 2019 and 2018, respectively. Our consumer customer churn was 2.24% and 2.12%, for the three and nine months ended September 30, 2019, compared to 2.03% for both the three and nine months ended September 30, 2018 and 2.14% and 2.07% for the three and six months ended June 30, 2019. The consolidated average monthly consumer revenue per customer (consumer ARPC) increased to $88.45 and $88.79 for the three and nine months ended September 30, 2019, respectively. The overall increase in consumer ARPC from September 30, 2018 is primarily a result of ~~consumer,~~customers increasingly opting for other video services including Over the Top, in lieu of traditional video services. We also shifted our focus away from the acquisition of higher cost video customers. During the first quarter of 2020, we lost voice subscribers as a result of customers choosing alternative voice products and reduced attachment to broadband ~~and video pricing initiatives that were implemented in 2018.~~

services.

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

We had approximately 381,000 and 422,000 total commercial customers as of September 30, 2019 and 2018, respectively. We lost approximately 9,000 and 30,000 commercial customers during the three and nine months ended September 30, 2019 compared to a loss of 8,000 and 31,000 commercial customers, respectively,

Our average monthly consumer customer churn was 1.81% for the three ~~and nine~~ months ended ~~September 30, 2018, and a loss of 10,000 commercial customers~~March 31, 2020 compared to 1.99% for three months ended March 31, 2019. The consolidated average monthly consumer revenue per customer (consumer ARPC) decreased by $2.21 or 2% to $86.93 during the ~~second~~first quarter of ~~2019. Our Ethernet product revenue from our SME (small business, medium business and larger enterprise customers) and carrier customers has grown by 7% during the third quarter of 2019,~~2020 compared to the prior year ~~period, and remained relatively flat compared to the second quarter~~period. The overall decrease in consumer ARPC is primarily a result of ~~2019.~~decreased FiOS/Vantage video services along with decreased consumer voice services, slightly offset by increased data equipment revenues.

‎

We had approximately 3.6 million and 3.8 million broadband subscribers as of September 30, 2019 and 2018, respectively. During the three and nine months ended September 30, 2019, we lost approximately 71,000 and 180,000 net broadband subscribers, respectively, compared to a loss of 61,000 and 136,000 net broadband subscribers, respectively for the three and nine months ended September 30, 2018, and a loss of 71,000 for the second quarter of 2019.

~~We offer video services under the FiOS~~^® ~~brand in portions of California, Texas, Florida, Indiana, Oregon and Washington, and the Vantage~~^TM ~~brand in portions of Connecticut, North Carolina, South Carolina, Minnesota, Illinois, New York, and Ohio. We also offer satellite TV video service to our customers under an agency relationship with DISH~~^® in all our markets. For the three and nine months ended September 30, 2019, we lost approximately 49,000 and 164,000, respectively, net video subscribers across all markets. At September 30, 2019, we had 698,000 video subscribers that are served with ~~FiOS~~^® ~~or Vantage video service. In addition to our video subscribers, we have approximately 181,000 DISH~~^® ~~satellite video customers.~~

~~REVENUE~~

For the three months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Data and Internet services
$
928
$
961
$
(33)
(3)
%
Voice services
621
669
(48)
(7)
%
Video services
244
260
(16)
(6)
%
Other
113
141
(28)
(20)
%
Revenue from contracts with customers ⁽¹⁾
1,906
2,031
(125)
(6)
%
Subsidy revenue
91
95
(4)
(4)
%
Total revenue
$
1,997
$
2,126
$
(129)
(6)
%
For the three months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Consumer
$
1,024
$
1,069
$
(45)
(4)
%
Commercial
882
962
(80)
(8)
%
Revenue from contracts with customers ⁽¹⁾
1,906
2,031
(125)
(6)
%
Subsidy revenue
91
95
(4)
(4)
%
Total revenue
$
1,997
$
2,126
$
(129)
(6)
%

⁽¹⁾~~Includes $17 million and $18 million of lease revenue for the three months ended September 30, 2019 and 2018, respectively.~~

4044

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

REVENUE

For the nine months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Data and Internet services
$
2,858
$
2,919
$
(61)
(2)
%
Voice services
1,900
2,053
(153)
(7)
%
Video services
772
810
(38)
(5)
%
Other
357
416
(59)
(14)
%
Revenue from contracts with customers ⁽¹⁾
5,887
6,198
(311)
(5)
%
Subsidy revenue
278
289
(11)
(4)
%
Total revenue
$
6,165
$
6,487
$
(322)
(5)
%
For the nine months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Consumer
$
3,151
$
3,292
$
(141)
(4)
%
Commercial
2,736
2,906
(170)
(6)
%
Revenue from contracts with customers ⁽¹⁾
5,887
6,198
(311)
(5)
%
Subsidy revenue
278
289
(11)
(4)
%
Total revenue
$
6,165
$
6,487
$
(322)
(5)
%



	For the three months ended March 31,				$ Increase		% Increase
($ in millions)	2020		2019		(Decrease)		(Decrease)

Data and Internet services	$	932	$	967	$	(35)	(4)	%
Voice services		572		650		(78)	(12)	%
Video services		222		268		(46)	(17)	%
Other		117		124		(7)	(6)	%
Revenue from contracts with customers ⁽¹⁾		1,843		2,009		(166)	(8)	%
Subsidy revenue		90		92		(2)	(2)	%
Total revenue	$	1,933	$	2,101	$	(168)	(8)	%


		For the three months ended March 31,			$ Increase		% Increase
($ in millions)	2020		2019		(Decrease)		(Decrease)

Consumer	$	971	$	1,077	$	(106)	(10)	%
Commercial		872		932		(60)	(6)	%
Revenue from contracts with customers ⁽¹⁾		1,843		2,009		(166)	(8)	%
Subsidy revenue		90		92		(2)	(2)	%
Total revenue	$	1,933	$	2,101	$	(168)	(8)	%

⁽¹⁾Includes ~~$52~~$17 million and ~~$55~~$18 million of lease revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Revenue

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

The 10% decrease in ~~consolidated total~~consumer customer revenue ~~for the nine months ended September 30, 2019~~ was primarily due to ~~fewer~~the 7% decline in consumer customers ~~partially offset by improved~~combined with decreased ARPC (as described above) resulting in reduced revenues for consumer ~~ARPC.~~

The decrease in consolidated customer revenue of $125 million for the three months ended September 30, 2019 consisted of decreases of $45 million and $80 million of consumer customer revenue and commercial customer revenue, respectively. The decrease in consolidated customer revenue of $311 million for the nine months ended September 30, 2019 consisted of decreases of $141 million and $170 million of consumer customer revenue and commercial customer revenue, respectively. The decrease in consolidated consumer customer revenue for the quarter was primarily due to decreases in voice services, video services, and to a lesser extent, ~~video services, partially offset by a slight increase in data and Internet services revenue. We have experienced declines in the number of traditional voice customers, video and~~ data and internet ~~customers,~~services.

The 6% decrease in commercial customer revenue was primarily driven by a 5% reduction in wholesale revenues which comprise approximately 52% of our commercial revenues. The decline in wholesale revenues is primarily a result of rate declines for our network access services. Our SME revenues that comprise the remaining commercial revenue decreased 8% primarily as a result of ~~competition and~~a 10% decline in small business customers in the ~~availability~~first quarter of substitutes, a trend we expect to continue. This was partially offset by improved ARPC for consumer customers. The decrease in consolidated commercial customer revenue for the quarter was driven primarily by decreases in data and internet as well as voice services. The declines in data and internet services included increases to our accounts receivable reserves for wholesale billing disputes as well as lower wireless backhaul revenue.2020.

41Subsidy revenue, which is primarily comprised of CAF Phase II subsidies, decreased $2 million, or 2% during the first quarter of 2020 compared to prior year. This decrease was the result of scheduled reductions in funding levels.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

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

Data and Internet Services

Data and ~~Internet~~internet services revenue for the three months ended March 31, 2020 decreased 4% as compared with the first quarter of 2019. Broadband and data services revenues comprise 61% or $565 million of total Data and internet services revenue, while network access revenues comprise 39% or $367 million. Network access revenues include ~~broadband services for residential and business customers. We provide~~our data transmission services to high volume ~~business~~commercial customers and other carriers with dedicated high capacity circuits ~~(“nonswitched access”)~~ including services to wireless providers (“wireless backhaul”).

~~For the three~~45

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Broadband and ~~nine months ended September 30, 2019, the decrease in Consolidated~~ data ~~and Internet~~ services revenue ~~consisted~~decreased by $20 million, or 3%, compared to the first quarter of ~~a decrease of $32 million and $49 million, respectively, for consolidated nonswitched access services and a decrease of $1 million and $12 million, respectively, for consolidated data services.~~2019. The decrease ~~in nonswitched access services~~ was primarily driven by a loss of Consumer and SME customers combined with decreased other data services revenue. Network access revenues declined $15 million, or 4%, compared to the first quarter of 2019. This decrease was due to the migration of our carrier customers from legacy technology circuits to lower ~~price~~priced ethernet ~~and increases to our accounts receivable reserves for wholesale billing disputes of $17 million.~~circuits.

Voice Services

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

The decrease of 12% for the three months ended March 31, 2020 in voice services revenue ~~for the three and nine months ended September 30, 2019,~~ was primarily ~~driven by the continued~~due to an 7% net loss ofin consumer customers and a 10% net loss in commercial customers compared to the prior year, combined with a reduction in voice ~~customers.~~services being bundled with broadband services.

Video Services

Video servicesinclude ~~revenue~~revenues generated from services provided directly to consumer customers through the FiOS^® video and Vantage video brands, and through ~~DISH~~^®Dish satellite TV services.

The decrease of 17% in video services revenue ~~for the three and nine months ended September 30, 2019,~~ was primarily ~~driven by a~~due to 21% net ~~decrease~~loss in ~~the total number of~~FiOS and Vantage terrestrial video ~~subscribers.~~customers.

Other

Other customer revenue includes switched access revenue and sales of Customer Premise Equipment (CPE) to our business customers and directory services. Switched access revenue includes revenue 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.

The decrease in other revenue for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was primarily driven by a decrease in switched access revenue due to reduced rates mandated by the Universal Service Fund/Intercarrier Compensation Report and Order with a related decline in operating expenses and activation associated fees.

Subsidy

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

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

OPERATING EXPENSES

NETWORK ACCESS EXPENSES

For the three months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Network access expenses
$
307
$
353
$
(46)
(13)
%
For the nine months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Network access expenses
$
963
$
1,094
$
(131)
(12)
%



	For the three months ended March 31,				$ Increase		% Increase
($ in millions)		2020	2019		(Decrease)		(Decrease)

Network access expenses	$	286	$	338	$	(52)	(15)	%

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

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

The decrease in network access expenses for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was primarily driven by lower video content costs as a result of a decline in video customers and decreased ~~certain promotional~~CPE costs.

NETWORK RELATED EXPENSES

For the three months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Network related expenses
$
464
$
476
$
(12)
(3)
%
For the nine months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Network related expenses
$
1,365
$
1,437
$
(72)
(5)
%



	For the three months ended March 31,				$ Increase		% Increase
($ in millions)		2020	2019		(Decrease)		(Decrease)

Network related expenses	$	444	$	456	$	(12)	(3)	%

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

The decrease in network related expenses for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was primarily driven by decreased compensation costs related to lower employee ~~headcount and decreased network services cost, and lower costs as a result of our Transformation program.~~headcount.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

For the three months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Selling, general and
administrative expenses
$
445
$
445
$
-
-
%
For the nine months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Selling, general and
administrative expenses
$
1,346
$
1,374
$
(28)
(2)
%



	For the three months ended March 31,				$ Increase		% Increase
($ in millions)	2020		2019		(Decrease)		(Decrease)

Selling, general and
administrative expenses	$	444	$	456	$	(12)	(3)	%

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

~~For the three months ended September 30, 2019, SG&A expense remained primarily flat.~~ The decrease in SG&A expenses for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was primarily ~~related to~~driven by decreased ~~outside service, warehousing and supplies cost and lower~~ compensation costs related to lower employee ~~headcount, partially offset by increased facilities costs.~~headcount.

Pension and OPEB costs

Frontier allocates certain pension/OPEB expense to network related expenses and SG&A expenses. Total consolidated pension and OPEB service costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:

For the three months ended September 30,
For the nine months ended September 30,
($ in millions)
2019
2018
2019
2018
Total pension/OPEB
service costs
$
25
$
27
$
77
$
86
Less: costs capitalized into
capital expenditures
(5)
(6)
(18)
(20)
Net pension/OPEB costs
$
20
$
21
$
59
$
66



	For the three months ended March 31,
($ in millions)	2020		2019

Total pension/OPEB
service costs	$	30	$	26
Less: costs capitalized into
capital expenditures		(7)		(6)
Net pension/OPEB costs	$	23	$	20

4447

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

DEPRECIATION AND AMORTIZATION EXPENSE

For the three months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Depreciation expense
$
321
$
337
$
(16)
(5)
%
Amortization expense
101
134
(33)
(25)
%
Depreciation and
Amortization expense
$
422
$
471
$
(49)
(10)
%
For the nine months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Depreciation expense
$
1,016
$
1,025
$
(9)
(1)
%
Amortization expense
344
437
(93)
(21)
%
Depreciation and
Amortization expense
$
1,360
$
1,462
$
(102)
(7)
%



	For the three months ended March 31,				$ Increase		% Increase
($ in millions)	2020		2019		(Decrease)		(Decrease)

Depreciation expense	$	316	$	353	$	(37)	(10)	%
Amortization expense		99		131		(32)	(24)	%
Depreciation and
Amortization expense	$	415	$	484	$	(69)	(14)	%

The decrease in depreciation expense for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was primarily driven by ceased depreciation on property, plant, and equipment classified as assets held for sale in connection with the planned sale of our Northwest Operations.

The decrease in amortization expense for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was primarily driven by the accelerated method of amortization related to customer bases acquired in 2010, 2014, and 2016.

~~GOODWILL IMPAIRMENT~~

As a result of the continued decline in our stock price, profitability, and the outlook of our business during the third quarter of 2019, we tested goodwill for impairment as of June 30, 2019 and September 30, 2019. In performing these tests, the determination of Frontier’s enterprise fair value as of September 30, 2019 was negatively impacted by our outlook for lower profitability. This was driven by several factors, including pressures on our business resulting in a continued deterioration in revenue, challenges in achieving improvements in revenue and customer trends under our transformation program, the long-term sustainability of our capital structure and lower outlook for our industry as a whole. Frontier’s enterprise carrying value was higher than its fair value resulting in goodwill impairment of $276 million and $5,725 million for the three and nine months ended September 30, 2019.

LOSS ON PLANNED DISPOSAL OF NORTHWEST OPERATIONS

As a result of our ongoing evaluation of the recoverability of the carrying value of the assets and liabilities held for sale as of March 31, 2020 relative to the agreed upon sales price, adjusted for costs to sell, we recorded a loss on planned disposal of ~~$414~~$24 million during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

RESTRUCTURING COSTS AND OTHER CHARGES

For the three months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Restructuring costs and
other charges
$
27
$
14
$
13
NM
For the nine months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Restructuring costs and
other charges
$
86
$
20
$
66
NM
NM - Not meaningful





	For the three months ended March 31,				$ Increase		% Increase
($ in millions)	2020		2019		(Decrease)		(Decrease)

Restructuring costs and
other charges	$	48	$	28	$	20	NM

NM - Not meaningful

Restructuring costs and other charges consist of expenses related to changes in the composition of our business, including workforce ~~reductions. During the three~~reductions, transformation initiatives, other restructuring expenses, and ~~nine months ended September 30, 2019, we incurred $18 million and $48 million, respectively, in costs directly associated with these activities.~~corresponding changes to retirement plans resulting from a voluntary severance program.

In ~~addition,~~2018, Frontier launched a strategic transformation program with the aim of re-positioning the Company to be better able to react to current and future business and operational challenges and to create long-term sustainable value. This program was reduced in scope and largely completed during the first half of 2019.

The $48 million in restructuring costs and other charges is comprised of $8 million in costs related to transformation initiatives, $2 million in severance expense, and $38 million in consulting and advisory costs related to our transformation program are included in Restructuring and other charges. During the three and nine months ended September 30, 2019, we incurred $9 million and $38 million, respectively, in costs directly associated with the transformation program.

Restructuring costs and other charges increased for the three and nine months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in the number of severed employees and the addition of transformation costs.balance sheet restructuring activities.

‎

4648

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

OTHER NON-OPERATING INCOME AND EXPENSE

For the three months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Investment and other income (loss), net
$
(10)
$
3
$
(13)
NM
Pension settlement
$
-
$
9
$
(9)
(100)
%
Gain (loss) on extinguishment of debt
$
-
$
(2)
$
2
(100)
%
Interest expense
$
382
$
389
$
(7)
(2)
%
Income tax benefit
$
(21)
$
(4)
$
(17)
425
%
For the nine months ended September 30,
$ Increase
% Increase
($ in millions)
2019
2018
(Decrease)
(Decrease)
Investment and other income (loss), net
$
(28)
$
16
$
(44)
NM
Pension settlement
$
-
$
34
$
(34)
(100)
%
Gain (loss) on extinguishment of debt
$
(20)
$
31
$
(51)
(165)
%
Interest expense
$
1,144
$
1,148
$
(4)
(0)
%
Income tax benefit
$
(537)
$
(11)
$
(526)
NM
NM - Not meaningful



	For the three months ended March 31,				$ Increase		% Increase
($ in millions)	2020		2019		(Decrease)		(Decrease)

Investment and other income (loss), net	$	5	$	(9)	$	14	NM
Pension settlement	$	103	$	-	$	103	100	%
Loss on extinguishment of debt	$	-	$	(20)	$	20	NM
Interest expense	$	383	$	379	$	4	1	%
Income tax (benefit) expense	$	(23)	$	18	$	(41)	NM

NM - Not meaningful

Investment and other income (loss), net

Investment and other income (loss), net for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 included ~~$34~~$1 million of non-operating pension and OPEB ~~expense~~income. Investment and other income (loss), net for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 included ~~$12~~$11 million of non-operating pension and OPEB ~~income.~~expense.

Pension ~~settlement~~Settlement

During the three months ended March 31, 2020, lump sum pension settlement payments to terminated or retired individuals amounted to $310 million, which exceeded the settlement threshold of $211 million, and as a result, Frontier recognized non-cash settlement charges ~~of $34~~totaling $103 million during the first ~~nine months~~quarter of 2018. The non-cash charge accelerated the recognition of a portion of previously unrecognized actuarial losses in the Pension Plan. No settlement charges have been recognized during the first nine months of 2019.2020.

~~Gain (loss)~~Loss on extinguishment of debt

~~During the nine months ended September 30, 2019,~~ Frontier recorded a loss on early extinguishment of debt of $20 million for the three months ended March 31, 2019 driven by the write-off of unamortized original issuance costs that were retired along with the Term Loan A and the 2016 CoBank Credit ~~Agreement. Frontier recorded a gain on early extinguishment of debt of $31 million for the nine months ended September 30, 2018 driven primarily~~ Agreement~~by discounts received on the retirement of certain notes, slightly offset by premiums paid to retire certain notes and wrote-off of unamortized original issuance costs.~~.

Interest expense

Interest expense for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 remained relatively flat as compared to the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Our composite average borrowing rate as of ~~September 30,~~March 31, 2020 and 2019 was 8.69% and ~~2018 was 8.76% and 8.64%~~8.90%, respectively.

Income tax benefit (expense)

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, Frontier recorded income tax benefit of ~~$(537)~~$23 million on the pre-tax loss of ~~$(6,286)~~$209 million. ~~The tax benefit was primarily driven by the tax impact of the goodwill impairment partially offset by recording a valuation allowance on certain deferred tax assets.~~ The effective tax rates on our pretax loss for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~8.5%~~11.1% compared with ~~2.5%~~(26.0)% for the pretax loss for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

Basic and diluted net loss attributable to Frontier common shareholders

Basic and diluted net loss attributable to Frontier common shareholders for the first ~~nine~~three months of ~~2019~~2020 was ~~$(5,749)~~$186 million, or ~~$(55.26)~~$(1.78) per share, as compared to a net loss of ~~$(531)~~$87 million, or ~~$(6.09)~~$(0.84) per share, in the first ~~nine~~three months of ~~2018.~~2019. For ~~2019, the increase in~~2020, our net loss was ~~primarily~~ driven by decreased revenues of $322 million, loss on disposal of $414 million, and the $5,725 million goodwill impairment charge, partially offset by decreased Network related, Selling, general, and administrative, and other operating expenses.profitability.

‎

4849

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

(b) Liquidity and Capital Resources

Historically, our principal liquidity requirements have been to maintain and expand our business, pay principal and interest obligations on our indebtedness, including our Term Loan B, Revolver, the notes and other expenses, and for capital expenditures to replace, upgrade, expand and improve our networks and infrastructure, to integrate acquired businesses and to separate assets and systems for sale.

Our ability to continue as a going concern is dependent upon our ability to, subject to the Bankruptcy Court’s approval, implement the Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet our obligations and operating needs. These factors, together with the Company’s recurring losses from operations and accumulated deficit, create substantial doubt about the Company’s ability to continue as a going concern.

Refer to “—Subsequent Events Related to the Restructuring Support Agreement and the Chapter 11 Cases” for more information on the terms of the Restructuring Support Agreement, the Chapter 11 Cases and the effects of both on our liquidity.

Analysis of Cash Flows

As of ~~September 30, 2019,~~March 31, 2020, we had unrestricted cash and cash equivalents aggregating ~~$683~~$941 million. ~~Our primary source of funds during~~For the ~~nine~~three months ended September 30, 2019 was cash on hand, cash generated from operations, cash received from the issuance of our First Lien Notes, and borrowings on our Revolver. For the nine months ended September 30, 2019,March 31, 2020, we used cash flow from operations, cash on hand, and cash from prior year borrowings to principally fund all of our cash investing and financing activities, which were primarily capital expenditures and debt repayments.

At ~~September 30, 2019,~~March 31, 2020, we had a working capital ~~surplus~~deficit of ~~$269~~$16,027 million compared to ~~a working capital deficit~~surplus of ~~$1,231~~$233 million at December 31, ~~2018.~~2019. The primary driver for the working capital ~~surplus~~deficit at ~~September 30, 2019,~~March 31, 2020, was the ~~reclassification~~acceleration of ~~assets and liabilities associated with~~the maturities of substantially all of our ~~Northwest Operations held for sale from long term to current.~~debt obligations following the filing of the Chapter 11 Cases.

Cash Flows from Operating Activities

Cash flows provided by operating activities ~~decreased $106~~increased $195 million to ~~$1,103~~$477 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 as compared to the corresponding period in ~~2018.~~2019. The overall ~~decrease~~increase in operating cash flows was primarily attributable to ~~decreased profitability.~~favorable changes in working capital, including an increase of $393 million of accrued interest as compared to March 31, 2019. This increase was due to the Company’s decision to defer $322 million of interest payments due March 15, 2020 on our unsecured senior notes.

We paid $5$1 million in net cash taxes during ~~each of~~ the ~~nine~~three months ended ~~September 30, 2019 and September 30, 2018.~~March 31, 2020.

Cash Flows from Investing Activities

Capital Expenditures

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ our capital expenditures were ~~$898~~$286 million and ~~$947~~$305 million, respectively. Capital expenditures related to CAF Phase II are included in our reported amounts for capital expenditures.

Cash Flows from Financing Activities

New Debt Issuances and Debt Reductions:

On March 15, 2019, we completed a private offering of $1,650 million aggregate principal amount of 8.00% First Lien Secured Notes due 2027 (the First Lien Notes). The First Lien Notes are guaranteed by each of the Company’s subsidiaries that guarantees its senior secured credit facilities. The guarantees are unsecured obligations of the guarantors equal in right of payment to all of the guarantor’s obligations under the Company’s senior secured credit facilities and certain other permitted future senior indebtedness and senior in right of payment with all subordinated obligations of the guarantors. The First Lien Notes are secured on a first-priority basis by all the assets that secure Frontier’s obligations under its senior secured credit facilities on a first-priority basis. Interest on the First Lien Notes

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

is payable to holders of record semi-annually in arrears on April 1 and October 1 of each year, commencing October 1, 2019.

OnDuring the three months ended March ~~19, 2018, we completed a private offering~~31, 2020, Frontier used cash on hand for the scheduled retirement of ~~$1,600~~$5 million ~~aggregate~~ principal amount of ~~8.50% Second Lien Secured Notes due 2026 (the Second Lien Notes). The Second Lien Notes are guaranteed by each of the Company’s subsidiaries that guarantees its~~ senior secured credit facilities. The guarantees are unsecured obligations of the guarantors and subordinated in right of payment to all of the guarantor’s obligations under the Company’s senior secured credit facilities and certain other permitted future senior indebtedness but equal in right of payment with all other unsubordinated obligations of the guarantors. The Second Lien Notes indenture provides that (a) the aggregate amount of all guaranteed obligations guaranteed by the guarantees are limited and shall not, at any time, exceed the lesser of (x) the principal amount of the Second Lien Notes then outstanding and (y) the Maximum Guarantee Amount (as defined in the Second Lien Notes indenture), and (b) for the avoidance of doubt, nothing in the Second Lien Notes indenture shall, on any date or from time to time, allow the aggregate amount of all such guaranteed obligations guaranteed by the guarantors to cause or result in the Company or any subsidiary violating any indenture governing the Company’s existing senior notes.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

The Second Lien Notes are secured on a second-priority basis by all the assets that secure Frontier’s obligations under its senior secured credit facilities on a first-priority basis. The collateral securing the Second Lien Notes and the Company’s senior secured credit facilities is limited to the equity interests of certain subsidiaries of the Company and substantially all personal property of Frontier Video Services, Inc. Interest on the Second Lien Notes is payable semi-annually in arrears on April 1 and October 1 of each year, commencing October 1, 2018. On July 3, 2018, the collateral package for the Second Lien Notes was amended to replace certain operating subsidiary equity pledges with pledges of the equity interests of certain direct subsidiaries of Frontier, consistent with amendments made to Frontier’s credit agreements.indebtedness.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2019, Frontier used cash on hand for the scheduled retirement of ~~$363~~$348 million principal amount of senior indebtedness. In addition, Frontier used the proceeds from the offering of First Lien Notes, together with cash on hand, to (i) repay in full the outstanding borrowings under the senior secured term loan A facility under the JPM Credit Agreement, which otherwise would have matured in March 2021, (ii) repay in full the outstanding borrowings under the 2016 CoBank Credit Agreement, which otherwise would have matured in October 2021, and (iii) pay related interest, fees and expenses.

During the nine months ended September 30, 2018, Frontier used cash on hand for the scheduled retirement of $115 million contractual payments of principal indebtedness and open market purchases of $61 million of 8.125% senior notes due 2018. Additionally, Frontier used cash proceeds from the $1,600 million Second Lien Notes offering and cash on hand to retire an aggregate principal amount of $1,651 million senior unsecured notes prior to maturity, consisting of $447 million of 8.50% senior notes due 2020, $249 million of 8.875% senior notes due 2020, $555 million of 6.250% senior notes due 2021, and $400 million of 9.250% senior notes due 2021.

On July 3, 2018, the Company entered into Increase Joinder No. 2 to the JPM Credit Agreement, pursuant to which the Company borrowed an incremental $240 million under the Term Loan B maturing in 2024. The Company used the incremental borrowings to repay in full the 2014 CoBank Credit Agreement, repay a portion of the 2016 CoBank Credit Agreement and pay certain fees and expenses related to this incremental borrowing.

Capital Resources

We are highly leveraged, and a substantial portion of our liquidity needs ~~will~~ arise from debt service on our outstanding indebtedness and from funding the costs of operations, working capital and capital expenditures. Our primary sources of cash are cash flows from operations, cash on hand ~~cash generated from operations,~~ and proceeds from debt borrowings, including ~~issues~~issuances of long-term debt and our fully drawn $850 million of borrowing capacity under our Revolver (as reduced by ~~our~~any Standby Letters of Credit outstanding under the JPM Credit Agreement). As of ~~the~~our date of filing, we believe our operating cash flows and existing cash balances, including the full borrowing under our revolving credit facility, and ~~access to~~cash proceeds from the ~~capital markets, as necessary,~~sale of our Northwest Operations will be adequate to finance our working capital requirements, fund capital expenditures, make required debt interest and principal payments, pay taxes and support our short-term and long-term operating strategies for ~~at least~~ the next twelve months. A number of factors, including but not limited to, losses of customers, pricing pressure from increased competition, ~~challenges in achieving improvement in revenue and customer trends under our transformation program,~~ lower subsidy and switched access revenues, and the impact of economic ~~and industry~~ conditions may negatively affect our cash generated from operations. We completed the sale of the Northwest Operations on May 1, 2020. Net of pension funding, certain escrows, and other closing adjustments, we received $1,131 million in proceeds. In addition, we have ~~$4 million~~obtained commitments, subject to the satisfaction of ~~debt maturing during~~certain customary conditions, including the ~~last three months~~approval of ~~2019, $245 million of debt maturing in 2020, and $327 million of debt maturing in 2021.~~the Bankruptcy Court, for a senior secured superpriority debtor-in-possession revolving credit facility, or DIP Facility.

~~We may,~~However, our ability to continue as a going concern is dependent upon our ability to, subject to the Bankruptcy Court’s approval, implement the Plan, successfully emerge from ~~time~~the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to ~~time, make repurchases of~~meet our ~~debt in~~obligations and operating needs. Refer to “—Subsequent Events Related to the ~~open market, through tender offers, by exercising rights to redeem or prepay debt or in privately negotiated transactions. We may also undertake financing~~Restructuring Support Agreement and ~~other strategic transactions, including to refinance or restructure existing debt or exchange existing debt~~the Chapter 11 Cases” for ~~newly issued debt obligations or equity securities. Approval of any such transaction would rest with our Board of Directors and would depend on market conditions, trading levels~~a description of the ~~Company's debt from time to time, the Company's cash position, the limitations contained in our indentures~~potential DIP Facility and ~~credit facilities,~~Exit Facility and ~~other considerations. We cannot assure you if or when we will consummate any such transactions or~~for more information on the terms of ~~any such transaction.~~the Restructuring Support Agreement, the Chapter 11 Cases and the effects of both on our liquidity.

Frontier expects to close the sale for our Northwest Operations in the first half of 2020. Upon closing, Frontier will receive cash proceeds of $1,352 million subject to certain closing adjustments including approximately $60 million related to the deficit for the pension assets and liabilities transferring as part of the sale.

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

Term Loan and Revolving Credit Facilities

JP Morgan Credit Facilities:

On February 27, 2017, Frontier entered into a first amended and restated credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which Frontier combined its revolving credit agreement, dated as of June 2, 2014, and its term loan credit agreement, dated as of August 12, 2015. Under the JPM Credit Agreement (as amended to date, the JPM Credit Agreement), Frontier has a $1,740 million senior secured ~~term loan~~Term Loan B facility (the Term Loan B) maturing on June 15, 2024 and an $850 million secured revolving credit facility maturing on February 27, 2024 (the Revolver). The maturities of the Term Loan B and the Revolver, in each case if still outstanding, will be accelerated in the following circumstances: (i) if, 91 days before the maturity date of any series of Senior Notes maturing in 2020, 2023 and 2024, more than $500 million in principal amount remains outstanding on such ~~series;~~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. As of ~~September 30,~~December 31, 2019, approximately $227 million principal amount, in the aggregate, remains outstanding on the two series of senior notes maturing in 2020 and ~~less than~~ $309 million principal amount, in the aggregate, remains outstanding on the two series of senior notes maturing in 2021.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Interest rate margins on the Revolver (ranging from 1.00% to 2.00% for Base Rate borrowings and 2.00% to 3.00% for LIBOR borrowings) are subject to adjustment based on Frontier’s Leverage Ratio (as defined in the JPM Credit Agreement). The interest rate on the Revolver as of ~~September 30, 2019~~March 31, 2020 was LIBOR plus 3.00%. Interest rate margins on the Term Loan B (2.75% for Base Rate borrowings and 3.75% for LIBOR borrowings) are not subject to adjustment. The security package under the JPM Credit Agreement includes pledges of the equity interests in certain Frontier subsidiaries and guarantees by certain Frontier subsidiaries. As of ~~September 30, 2019,~~March 31, 2020, Frontier had borrowings of $749 million outstanding under the Revolver (with letters of credit issued under the Revolver totaling $101 million).

On March 15, 2019, Frontier used proceeds from the offering of First Lien Notes, together with cash on hand, to repay in full the outstanding borrowings under its $1,625 million senior secured Term Loan A facility, which otherwise would have matured in March 2021, as described above under “New Debt Issuances and Debt Reductions.”

In addition on March 15, 2019, Frontier amended the JPM Credit Agreement to, among other things, (i) extend the maturity date of the Revolver from February 27, 2022 to February 27, 2024 (subject to springing maturity to any tranche of our existing debt with an aggregate outstanding principal amount in excess of $500 million), (ii) increase the interest rate applicable to such revolving loans by 0.25% and (iii) make certain modifications to the debt and restricted payment covenants.

CoBank Credit Facilities:

Frontier had a $315 million senior term loan facility drawn in October 2016 (as amended to date, the 2016 CoBank Credit Agreement) with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other lenders. On March 15, 2019, Frontier used proceeds from the offering of the First Lien Notes, together with cash on hand, to repay in full the outstanding borrowings under the 2016 CoBank Credit Agreement, which otherwise would have matured in October 2021.

Frontier had a separate $350 million senior term loan facility drawn in 2014 (the 2014 CoBank Credit Agreement) with CoBank which was repaid in full on July 3, 2018, as described above under “New Debt Issuances and Debt Reductions.”

Letters of Credit

Frontier has a Continuing Agreement for Standby Letters of Credit with Deutsche Bank AG New York Branch ~~and Bank of Tokyo – Mitsubishi UFJ, LTD.~~ (the LC ~~Agreements)~~Agreement). Frontier can also issue letters of credit under the Revolver up to a maximum of $134 million. As of ~~September 30, 2019,~~March 31, 2020, $50 million and $101 million of undrawn Standby Letters of Credit had been issued under the LC ~~Agreements~~Agreement and ~~$101 million Standby~~Revolver respectively. Letters of ~~Credit had been issued under the Revolver. In July 2019, a $20 million Letter of Credit issued under the Bank of Tokyo LC agreement was replaced~~

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

~~by a Letter of Credit issued under the Revolver. These Standby Letters of Credit are issued primarily in relations to supporting the Company's workers compensation insurance programs. Borrowings~~credit under the LC ~~Agreements~~Agreement are secured by a security package identical to those contained in the JPM Credit ~~Agreement.~~Amendment.

Covenants

The terms and conditions contained in our indentures and the JPM Credit Agreement include the timely payment of principal and interest when due, the maintenance of our corporate existence, keeping proper books and records in accordance with GAAP, restrictions on the incurrence of liens on our assets securing indebtedness and our subsidiaries’ assets, restrictions on the incurrence of indebtedness by our subsidiaries and restrictions on asset sales and transfers, mergers and other changes in corporate control ~~and restrictions on dividends and distributions, each~~ subject to important qualifications and exceptions.

Under the JPM Credit Agreement, Frontier is subject to a first lien net leverage ratio maintenance test which provides for a maximum first lien net leverage ratio of 1.50 to 1.00 as of the last day of any fiscal quarter, stepping down to 1.35 to 1.00 for the fiscal quarters ending June 30, 2020 and thereafter. The covenants provide for junior lien capacity on any indebtedness permitted under the credit agreements, while limiting the incurrence of first lien debt. Additionally, the credit agreement prohibits us from using proceeds from our revolving credit facility to fund dividend payments if the undrawn amount under the Revolver is less than $250 million, and we may not pay dividends on our common stock in excess of $2.40 per share in any fiscal year.

The indentures governing our secured notes and senior notes and debentures limit our ability to create liens on our assets securing indebtedness and our subsidiaries’ assets or merge or consolidate with other companies, our subsidiaries’ ability to borrow funds and to engage in change of control transactions, subject to important exceptions and qualifications. Our secured notes are guaranteed by each of our subsidiaries that guarantees the JPM Credit

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Agreement. In addition, the secured notes are secured on a first-priority basis and a second-priority basis, as applicable, by all the assets that secure our obligations under the JP Credit Agreement on a first-priority basis.

As of ~~September 30, 2019,~~March 31, 2020, we were in compliance with all of the covenants under our ~~indenture~~indentures and ~~credit facility~~the JPM Credit Agreement. On April 14, 2020, the Company Parties filed the Chapter 11 Cases in the Bankruptcy Court. The filing of the Chapter 11 Cases constituted an Event of Default under our debt covenants.

~~Preferred Dividends~~Shareholder Rights Plan

~~Holders~~On July 1, 2019, our Board of Directors adopted a shareholder rights plan designed to protect our net operating losses for tax purposes (NOLs) from the effect of limitations imposed by federal and state tax rules following a change in the ownership of our ~~Series A Preferred Stock were entitled~~stock. This plan was designed to ~~receive cumulative dividends at~~deter an ~~annual rate~~“ownership change” (as defined in IRC Section 382) from occurring, and therefore protect our ability to utilize our federal and state net operating loss carryforwards in the future. Pursuant to the shareholder rights plan, if a shareholder (or group of ~~11.125%~~affiliated or associated persons) acquires beneficial ownership of 4.9 percent or more of the ~~initial liquidation preference~~outstanding shares of ~~$100 per share,~~Frontier’s common stock without prior approval of our Board of Directors or ~~$11.125 per year per share. Series A Preferred Stock~~without meeting certain customary exceptions (such as a result of repurchases of stock by Frontier, dividends or distributions by Frontier or certain inadvertent actions by our stockholders), the rights would become exercisable and entitle shareholders (other than the acquiring shareholder or group) to purchase additional shares of ~~$107 million were paid during 2018. Each share~~Frontier at a significant discount and result in significant dilution in the economic interest and voting power of ~~Series A Preferred Stock automatically converted into 1.3333~~acquiring shareholder or group. For purposes of calculating percentage ownership under the plan, “outstanding shares” of common stock include all of the shares of common stock actually issued and outstanding. Beneficial ownership is determined as provided in the rights plan and generally includes, without limitation, any ownership of securities a person would be deemed to actually or constructively own for purposes of Section 382 of the IRC or the regulations promulgated thereunder.

The plan is not meant to be an anti-takeover measure and our Board of Directors has established a procedure to consider requests to exempt the acquisition of our common stock from the rights plan, if such acquisition would not limit or impair the availability of our NOLs. Such determination will be made in the sole and absolute discretion of our Board of Directors, upon request by any person prior to the date upon which such person would otherwise become the beneficial owner of 4.9 percent or more of the outstanding shares of our common stock. In addition, if our Board of Directors determines in good faith that a person has inadvertently become the beneficial owner of 4.9 percent or more of the outstanding shares of our common stock, and such person divests as promptly as practicable a sufficient number of shares of common stock so that such person beneficially owns less than 4.9 percent, then such person will not cause the rights under the plan to become exercisable.

This summary description of the rights plan does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, dated as of July 1, 2019, by and between us and Computershare Trust Company, N.A., as Rights Agent, filed as an exhibit to our Periodic Report on Form 8-K filed on July 1, 2019.

Subsequent Events Related to the Restructuring Support Agreement and the Chapter 11 Cases

Restructuring Support Agreement

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

to the extent not converted into an Exit Facility, full satisfaction in cash on the Plan Effective Date of all DIP Facility claims;

cash interest payments for (i) the Term Loan B maturing on June ~~29, 2018.~~15, 2024, and (ii) the $1,650 million aggregate principal amount of the First Lien Notes, as applicable, at non-default rate during the Chapter 11 Cases, which shall not include any make-whole payments, until repayment or reinstatement of such indebtedness;

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

litigation-related claims against the Company that would be subject to the automatic stay (except those subject to the police and regulatory exception) (the Parent Litigation Claims) will be unimpaired, provided that the Parent Litigation Claims will be allowed in an amount that does not exceed existing insurance coverage plus $25 million;

no distribution for existing equity interests; and

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

take any action, directly or indirectly, that is reasonably likely to interfere with acceptance, implementation, or consummation of the Restructuring Transactions; (iii) vote each of its Senior Notes Claims to accept the Plan; and (iv) not transfer Senior Notes Claims held by each Consenting Noteholders except with respect to limited and customary exceptions, including requiring any transferee to either already be bound or become bound by the terms of the Restructuring Support Agreement.

We have significant deferred tax assets, including NOLs. The impact of the Restructuring on the Company’s NOLs will depend on whether the Restructuring is structured as (i) a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company, (ii) as a recapitalization of the Company, or (iii) some other alternative structure. If structured as a taxable disposition, we anticipate that NOLs of the Company (if any) remaining after the Restructuring will not be available to the Company after consummating the Restructuring. If structured as a recapitalization, we anticipate that the Company will experience an ownership change, and thus NOLs of the Company (if any) remaining after the Restructuring will be subject to limitation, such that the Company may not derive all of the benefits of any such remaining NOLs after consummating the Restructuring.

Chapter 11 Cases

To implement the Plan, on the Petition Date, the Company Parties filed the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court. Each Company Party will continue to operate its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476. Documents filed on the docket of and other information related to the Chapter 11 Cases are available at https://cases.primeclerk.com/ftr. Documents and other information available on such website are not part of this document and shall not be deemed incorporated by reference in this document.

To ensure the Company Parties’ ability to continue operating in the ordinary course of business and minimize the effect of the Restructuring on the Company Parties’ customers and employees, the Company Parties filed with the Bankruptcy Court motions seeking a variety of “first-day” relief, including authority to obtain the DIP Facility, pay employee wages and benefits, and pay vendors and suppliers in the ordinary course for all goods and services.

DIP Facility

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court, the Commitment Parties have agreed to provide the DIP Loan Parties with a senior secured superpriority debtor-in-possession revolving credit facility (the DIP Revolving Facility) in an aggregate principal amount of $460 million which, upon satisfaction of certain conditions, including the effectiveness of the Plan, will become a longer term senior secured exit revolving facility (the Exit Revolving Facility).

The terms and conditions of the DIP Revolving Facility are set forth in the form Senior Secured Superpriority Debtor-in-Possession Credit Agreement (the Form DIP Credit Agreement) attached to the Commitment Letter. The DIP Revolving Facility includes conditions precedent, representations and warranties, affirmative and negative covenants and events of default customary for financings of this type and size, including an event of default (the Prepayment Event of Default) that is triggered if the revolving loans outstanding under the JPM Credit Agreement are not repaid in full on or prior to the earlier to occur of (i) the 60th day following the Company’s actual receipt of the net cash proceeds from the sale of the Northwest Operations, and (ii) the third business day following the first day on which the Company has received both (x) the net cash proceeds of the sale of the Northwest Operations and (y) an order of the Bankruptcy Court approving the repayment in full of the outstanding revolving loans under the JPM Credit Agreement. The occurrence of the Prepayment Event of Default would cause the termination of the commitments with respect to the Exit Revolving Facility unless otherwise agreed by each Commitment Party. The proceeds of all or a portion of the DIP Revolving Facility may be used for, among other things, general corporate purposes, including working capital and permitted acquisitions and letters of credit, administrative costs, premiums, expenses and fees of the transactions contemplated by the Chapter 11 Cases, for payment of court approved adequate protection obligations and other such purposes consistent with the DIP Revolving Facility. To the extent not converted into an Exit Revolving Facility, DIP Revolving Facility claims will be paid in cash on the Plan Effective Date. The terms and conditions of the Exit Revolving Facility are reflected in an exit facility term sheet attached as an exhibit to the Form DIP Credit Agreement (the Exit Facility Term Sheet). Upon of the satisfaction of certain conditions set forth in the Exit Facility Term Sheet, including compliance with a 1.55:1.00 gross first lien leverage ratio test and the repayment in full of the revolving loans outstanding under the JPM Credit Agreement, the DIP Revolving Facility commitments will become Exit Revolving Facility commitments. The Company has the option to increase the size of the Exit Revolving Facility up to an amount of $600.0 million by obtaining commitments from one or more lenders prior to the Plan Effective Date.

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

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

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

Off-Balance Sheet Arrangements

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

Contractual Obligations

Other than as disclosed elsewhere in this report with respect to the filing of the Chapter 11 Cases and the acceleration of substantially all of our debt as a result, there have been no material changes outside the ordinary course of business to the information provided with respect to our contractual obligations, including indebtedness

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

and purchase and lease obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Future Commitments

In April 2015, the FCC released its right of first refusal offer of support to price cap carriers under the CAF Phase II program, which is intended to provide long-term support for broadband in high cost unserved or underserved areas. In June 2015, Frontier accepted the CAF Phase II offer, which provides for $332 million in annual support through 2020, including $19 million in annual support related to the Northwest Operations, to make available 10 Mbps downstream/1 Mbps upstream broadband service to approximately 774,000 households across some of the 29 states where we operate.

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

Critical Accounting Policies and Estimates

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

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

~~There~~Except for the removal of goodwill impairment as a critical accounting policy due to full impairment during fiscal 2019, there have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. “Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2018, other than those described in Part 1, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on Form 10-Q for the six months ended June 30, 2019.

Recent Accounting Pronouncements

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

‎

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Regulatory Developments

In 2015, Frontier accepted the FCC’s CAF Phase II offer in 29 states, which provides $332 million in annual support through 2020 (since extended to 2021 under the RDOF program, see below) in return for the Company’s commitment to make broadband available to approximately 774,000 locations within Frontier’s footprint. This amount includes approximately $19 million in the four states of the Northwest Operations. The CAF Phase II program is intended to provide long-term support for carriers for establishing and providing broadband service with at least 10 Mbps downstream/1 Mbps upstream speeds in high-cost unserved or underserved areas. CAF Phase II support is a successor to the approximately $198 million in annual USF frozen high-cost support that Frontier used to receive prior to CAF II. In addition to the annual support levels, these amounts also include frozen support phasedown amounts in states where the annual CAF II funding is less than the prior annual frozen high-cost support funding. Phasedown funding provided to Frontier was complete as of December 31, 2018.

On ~~August 1, 2019,~~January 30, 2020, the FCC adopted ~~a notice of proposed rulemaking to establish~~an order establishing the ~~Rural Digital Opportunity Fund (RDOF),~~RDOF program, the next phase of the CAF program. ~~In the notice,~~With this order, the FCC ~~proposes~~plans to hold two auctions totaling $20.4 billion of support over ten years. In the first auction, the FCC ~~would~~plans to offer up to $16 billion in support over ten years ($1.6 billion annually) for an estimated ~~3.9~~6 million locations that ~~the FCC knows do not have~~lack access to speeds of at least 25/3 Mbps based on the FCC’s current maps. ~~Then, after~~After the FCC ~~is able to update~~updates its maps with more granular broadband availability information, the FCC ~~would~~plans to hold a second auction for any remaining locations with the remaining funding, at least $4.4 billion. Recognizing that the RDOF auction is unlikely to conclude before the end of the sixth year of CAF Phase II support (year-end 2020), ~~and recognizing~~the order explains that CAF II recipients are entitled to a seventh year of CAF Phase II support ifthrough 2021, whether or not they are ~~not~~ successful in the RDOF auction. The Commission released a public notice tentatively establishing October 22, 2020, as the date for the RDOF auction and is still soliciting technical details on the ~~notice asks questions about~~mechanics of the ~~timing of and how this seventh year of transitional~~auction. As such, Frontier will continue to receive annual CAF Phase II support ~~should be paid. This notice represents the first step~~ in the Commission’s process towards adopting the RDOF. Several parties, including Frontier, have filed comments in this proceeding. The FCC must review all filed reply comments and adopt an order and multiple public notices before moving forward with an auction.2021. While the RDOF has not yet been completely finalized, ~~its final form~~it could result in a material change in the level of funding that Frontier receives from the FCC under CAF II as early as ~~2021.~~2022.

On April 20, 2017, the FCC issued an Order (the 2017 Order) that significantly altered how ~~Commercial Data Services~~commercial data services are regulated. Specifically, the 2017 Order adopted a test to determine, on a county-by-county basis, whether ~~price cap ILECs, like~~price-cap ILEC services, such as Frontier’s DS1 and DS3 services, will continue to ~~have these services~~be regulated. The test resulted in deregulation ~~of these services~~ in a substantial number of our markets and is allowing Frontier to offer ~~these~~its DS1 and DS3 services in a manner that better responds to the competitive marketplace and allows for commercial negotiation. The areas that remain regulated may be subject to price fluctuations depending upon the price cap formula ~~that~~in each year. ~~Multiple~~While multiple parties appealed the 2017 Order, in the 8th Circuit ~~Court of Appeals. The Court of Appeals~~ issued a ~~ruling August 28, 2018, which~~decision that upheld the ~~vast~~ majority of the ~~FCC’s~~2017 Order. As to the part of the decision ~~easing regulation of business data services of internet service providers and~~that was vacated and remanded ~~one piece of the Order back~~ to the ~~FCC. On October 10, 2018,~~FCC, the FCC ~~filed a Motion~~has reinstated the deregulation and the FCC’s decision to ~~Stay the Court’s Decision. On July 10, 2019, the FCC issued an Order reinstating~~reaffirm its original decision regarding transport that was remanded by the 8th Circuit. While this Order cures the lack of notice cited by the 8th Circuit, Frontier cannot predict whether parties may again appeal the decision or the extent to which these changes could affect revenues at this time.deregulation has not been appealed.

On September 25, 2019, the FCC released an order scheduling its CBRS (3.5 GHz) auction, in which the FCC will auction 7 blocks of 10 MHz TDD per county, or 22,631 licenses nationwide, to begin on ~~June 25,~~July 23, 2020. Short form applications to participate need to be filed by May 7, 2020. Frontier is evaluating whether to participate in this auction.

In September 2018, California network neutrality legislation was signed into law. The California legislation aims to reimpose the provisions of the FCC’s 2015 Network Neutrality decision. The Department of Justice has filed a lawsuit against California, stating that it attempts to govern interstate commerce, which is a federal matter outside the state’s jurisdiction. Four Industry Associations representing Internet Service Providers (USTelecom, CTIA, NCTA and ACA) have also filed suit. The California Attorney General has agreed to delay implementing the California law until the federal lawsuit is resolved. Frontier cannot predict the outcome of this litigation and, although Frontier’s current practices comply with the California law, the extent to which regulatory changes associated with the California law could affect revenues at this time. A number of additional states are currently considering Network Neutrality legislation during their 2019 legislative sessions.

On October 1, 2019, the D.C. Circuit Court largely upheld the FCC decision in its 2018 Restoring Internet Freedom Order to reclassify broadband as an “information service.” However, the Court invalidated the FCC’s preemption of

~~PART I. FINANCIAL INFORMATION (Continued)~~

~~FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES~~

a state’s ability to pass their own network neutrality rules and remanded back to the FCC other parts of the 2018 Order. We anticipate that this ruling will be appealed. California’s network neutrality provisions will remain on hold until all appeals of this case have been exhausted.

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

On March 13, 2020, in response to the COVID-19 pandemic, over 550 providers of critical communications services, including Frontier, took the FCC’s Keep Americans Connected pledge pursuant to which providers agreed for the following 60 days (i) not to terminate service to any residential or small business customers because of their inability to pay their bills due to the disruptions caused by the coronavirus pandemic; (ii) waive any late fees that any residential or small business customers incur because of their economic circumstances related to the coronavirus pandemic; and (iii) to open their Wi-Fi hotspots to any American who needs them. We have seen a number of the states we operate in issue executive orders prohibiting the disconnection of services for customers for the length of the state of emergency. State and federal governments continue to ask companies to aid in pandemic response and some are reviewing possibilities of providing additional funding for connectivity, although potential amounts are still unknown. Given the unprecedented and evolving nature of the pandemic and the swift moving response of multiple levels of government, the impact of these changes and potential changes on the company are unknown at this time.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Interest Rate Exposure

Our exposure to market risk for changes in interest rates relates primarily to the interest-bearing portion of our pension investment portfolio and the related actuarial liability for pension obligations, as well as our floating rate indebtedness. As of ~~September 30, 2019,~~March 31, 2020, 86% of our total debt had fixed interest rates. We had no interest rate swap agreements in effect at ~~September 30, 2019.~~March 31, 2020. We believe that our currently outstanding obligation exposure to interest rate changes is minimal.

Our objectives in managing our interest rate risk are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, 14% of our outstanding borrowings at ~~September 30, 2019~~March 31, 2020 have floating interest rates. The annual impact of 100 basis points change in the LIBOR would result in approximately ~~$25~~$24 million of additional interest expense. Our $850 million revolving credit facility has interest rates that float with the LIBOR, as defined. Consequently, we have limited material future earnings or cash flow exposures from changes in interest rates on our debt. An adverse change in interest rates would increase the amount that we pay on our variable rate obligations and could result in fluctuations in the fair value of our fixed rate obligations. Based upon our overall interest rate exposure, a near-term change in interest rates would not materially affect our consolidated financial position, results of operations or cash flows.

At ~~September 30, 2019,~~March 31, 2020, the fair value of our ~~total~~ debt was estimated to be approximately ~~$11.7~~$10.1 billion, based on quoted market prices, our overall weighted average borrowing rate was ~~8.76%~~8.69% and our overall weighted average maturity was approximately ~~seven~~six years. As of ~~September 30, 2019,~~March 31, 2020, prior to the filing of the Chapter 11 Cases, there ~~has~~had been no significant change in the weighted average maturity applicable to our obligations since December 31, ~~2018.~~2019. However the filing of the Chapter 11 Cases has accelerated the maturity of substantially all of our debt obligations. Refer to Note 9 for discussion of the impact of the Chapter 11 Cases on our debt obligations.

Equity Price Exposure

Our exposure to market risks for changes in equity security prices as of ~~September 30, 2019~~March 31, 2020 is primarily limited to our pension plan assets. We have no other security investments of any significant amount.

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PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

Item 4. Controls and Procedures

(a)Evaluation of disclosure controls and procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon this evaluation, our principal executive officer and principal financial officer concluded, as of the end of the period covered by this report, ~~September 30, 2019,~~March 31, 2020, that our disclosure controls and procedures were ~~effective.~~effective in recording, processing, summarizing and reporting on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in internal control over financial reporting

The adoption of ASC 842 requires the implementation of new accounting policies and processes, including enhancements to our information systems, which changed the Company’s internal controls over financial reporting for lease standard and related disclosures. Other than the above noted change, thereThere have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in an evaluation thereof that occurred during the ~~third~~first fiscal quarter of ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On April 30, 2018, an amended consolidated class action complaint was filed in the United States District Court for the District of Connecticut on behalf of certain purported stockholders against Frontier, certain of its current and former directors and officers and the underwriters of certain Frontier securities offerings. The complaint was brought on behalf of all persons who (1) acquired Frontier common stock between February 6, 2015 and February 28, 2018, inclusive, and/or (2) acquired Frontier common stock or Mandatory Convertible Preferred Stock either in or traceable to Frontier’s offerings of common and preferred stock conducted on or about June 2, 2015 and June 8, 2015. The complaint asserted, among other things, violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 thereunder, Section 20(a) of the Exchange Act and Sections 11 and 12 of the Securities Act of 1933, as amended, in connection with certain disclosures relating to the CTF Acquisition. The complaint sought, among other things, damages and equitable and injunctive relief. On March 8, 2019, the District Court granted in its entirety Frontier’s motion to dismiss the complaint. The District Court dismissed with prejudice a number of claims and with respect to certain other claims that were not dismissed with prejudice, Plaintiffs were permitted to seek the court’s permission to refile. On May 10, 2019, Plaintiffs filed a motion for leave to amend along with a proposed amended complaint that is narrower in scope than the dismissed complaint. ~~Frontier filed an opposition to~~On March 24, 2020, the court denied plaintiffs’ motion for leave to amend, ~~and~~finding that they had not pled a viable claim. Plaintiffs may seek an appeal of the ~~motion remains pending.~~order dismissing the case. We continue to dispute the allegations and intend to vigorously defend against such claims. In addition, shareholders have filed derivative complaints on behalf of the Company in Connecticut, California, and Delaware courts. The derivative complaints are based, generally, on the same facts asserted in the consolidated class action complaint and allege against current and former officers and directors of the Company (i) breach of fiduciary duty claims for disseminating false and misleading information to shareholders, failure to manage internal controls, and failure to oversee and manage the company; (ii) unjust enrichment and waste of corporate assets claims; and (iii) violations of Section 14(a) of the Exchange Act for the false and misleading statements. We also dispute the allegations in the derivative complaints described above and intend to vigorously defend against such claims. Given that all of these matters are in the early stages of litigation, we are unable to estimate a reasonably possible range of loss, if any, that may result.

In addition, we are party to various other legal proceedings (including individual, class and putative class actions as well as federal and state governmental investigations) arising in the normal course of our business covering a wide range of matters and types of claims including, but not limited to, general contracts, billing disputes, rights of access, taxes and surcharges, consumer protection, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers. Such matters are subject to uncertainty and the outcome of individual matters is not predictable. However, we believe that the ultimate resolution of these matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

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

Effect of Automatic Stay upon filing under Chapter 11 of the United States Bankruptcy Code

Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against or on behalf of the Company Parties, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company Parties’ property. Subject to certain exceptions under the Bankruptcy Code, the filing of the Company Parties’ Chapter 11 Cases also automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the Company Parties or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Company Parties’ bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors described in Part 1, Item 1A “Risk Factors” in our Annual Report on Form 10-K, for the fiscal year ended December 31, ~~2018, other than those Risk Factors described in Part 2, Item 1A “Risk Factors” in our Quarterly Report on form 10-Q for the six month period ended June 30,~~ 2019.

‎

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PART II. OTHER INFORMATION

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

There were no unregistered sales of equity securities during the quarter ended ~~September 30, 2019.~~March 31, 2020.

ISSUER PURCHASES OF EQUITY SECURITIES

Period
Total Number of Shares Purchased
Average Price Paid per Share
July 1, 2019 to July 31, 2019
Employee Transactions ⁽¹⁾
2,207
$
1.55
August 1, 2019 to August 31, 2019
Employee Transactions ⁽¹⁾
-
$
-
September 1, 2019 to September 30, 2019
Employee Transactions ⁽¹⁾
509
$
1.14
Totals July 1, 2019 to September 30, 2019
Employee Transactions ⁽¹⁾
2,716
$
1.47



Period	Total Number of Shares Purchased	Average Price Paid per Share

January 1, 2020 to January 31, 2020
Employee Transactions ⁽¹⁾	-	$	-

February 1, 2020 to February 28, 2020
Employee Transactions ⁽¹⁾	129,031	$	0.57

March 1, 2020 to March 31, 2020
Employee Transactions ⁽¹⁾	-	$	-


Totals January 1, 2020 to March 31, 2020
Employee Transactions ⁽¹⁾	129,031	$	0.57

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

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PART II. OTHER INFORMATION

Item 6. Exhibits


(a)	Exhibits:
	31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
	31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
	32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101	The following materials from Frontier’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Loss; (iv) the Consolidated Statements of Equity (Deficit); (v) the Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.
	104	Cover Page from Frontier’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted in iXBRL and contained in Exhibit 101.

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PART II. OTHER INFORMATION

SIGNATURE

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


	FRONTIER COMMUNICATIONS CORPORATION



	By: /s/ Donald Daniels
	Donald Daniels
	Senior Vice President and Chief Accounting Officer
	(Principal Accounting Officer)

Date: ~~November~~May 6, ~~2019~~2020

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	For the nine months ended September 30,
	2019		2018

Cash flows provided from (used by) operating activities:
Net loss	$	(5,749)	$	(424)
Adjustments to reconcile net loss to net cash provided from (used by)
operating activities:
Depreciation and amortization		1,360		1,462
Loss (gain) on extinguishment of debt		20		(31)
Pension settlement costs		-		34
Stock-based compensation expense		10		14
Amortization of deferred financing costs		23		26
Other adjustments		2		(24)
Deferred income taxes		(541)		(12)
Goodwill impairment		5,725		400
Loss on disposal of Northwest Operations		414		-
Change in accounts receivable		17		43
Change in accounts payable and other liabilities		(153)		(239)
Change in prepaid expenses, income taxes and other assets		(25)		(40)
Net cash provided from operating activities		1,103		1,209

Cash flows provided from (used by) investing activities:
Capital expenditures		(898)		(947)
Proceeds on sale of assets		76		11
Other		2		4
Net cash used by investing activities		(820)		(932)

Cash flows provided from (used by) financing activities:
Long-term debt payments		(2,003)		(1,997)
Proceeds from long-term debt borrowings		1,650		1,840
Proceeds from revolving debt		949		-
Repayment of revolving debt		(475)		-
Financing costs paid		(44)		(43)
Premium paid to retire debt		-		(17)
Dividends paid on preferred stock		-		(107)
Finance lease obligation payments		(26)		(30)
Other		(5)		(11)
Net cash provided from (used by) financing activities		46		(365)

Increase (Decrease) in cash, cash equivalents, and restricted cash		329		(88)
Cash, cash equivalents, and restricted cash at January 1,		404		376

Cash, cash equivalents, and restricted cash at September 30,	$	733	$	288

Supplemental cash flow information:
Cash paid during the period for:
Interest	$	1,208	$	1,266
Income tax payments, net	$	5	$	5



($ in millions)	Revenue from contracts with customers
2019 (remaining three months)	$	778
2020		1,909
2021		849
2022		385
2023		191
Thereafter		249
Total	$	4,361



($ in millions)	Principal payments

2019 (remaining three months)	$	4
2020	$	245
2021	$	327
2022	$	2,706
2023	$	868
Thereafter	$	12,621



			(Unaudited)
	As Reported		ASC 842			Adjusted
($ in millions)	December 31, 2018		Transition Adjustment			January 1, 2019
Assets
Other assets	$	265	$	205	⁽¹⁾	$	470

Liabilities and Equity (Deficit)
Other current liabilities	$	394	$	32	⁽²⁾	$	426
Other liabilities	$	281	$	158	⁽³⁾	$	439
Deferred income taxes	$	1,109	$	4	⁽⁴⁾	$	1,113
Accumulated deficit	$	(2,752)	$	11	⁽⁵⁾	$	(2,741)



($ in millions)	September 30, 2019

Operating right-of-use assets	$	196	⁽¹⁾
Finance right-of-use assets	$	170	⁽²⁾

Operating lease liabilities	$	203	⁽³⁾
Finance lease liabilities	$	161	⁽⁴⁾

Operating leases:
Weighted-average remaining lease term		7.61	years
Weighted-average discount rate		8.26	%

Finance leases:
Weighted-average remaining lease term		8.86	years
Weighted-average discount rate		7.97	%



		Operating		Finance
($ in millions)		Leases		Leases
Future maturities:
2019 (remaining three months)	$	12	$	11
2020		44		35
2021		38		31
2022		36		26
2023		33		22
Thereafter		106		104
Total lease payments		269		229
Less: imputed interest		(66)		(68)
Present value of lease liabilities	$	203	$	161



	Operating
($ in millions)	Lease Payments
Future maturities of lease payments from customers:
2019 (remaining three months)	$	3
2020		10
2021		10
2022		10
2023		10
Thereafter		8
Total lease payments from customers	$	51