FRONTIER COMMUNICATIONS CORPORATE SERVICES INC.
SAVINGS AND SECURITY PLAN FOR MID-ATLANTIC ASSOCIATES
Notes to Financial Statements
December 31, 2018 and 2017
(1)
Description of the Plan
General
The following brief description of the Frontier Communications Corporate Services Inc. Savings and Security Plan for Mid-At
lantic Associates (the “Plan”)
provides general and limited information. Participants should refer to the Plan document for a more comprehensive description of the Plan’s provisions. Copies of the Plan document are available from the Plan sponsor.
(a)
Background
The Plan is a defined contribution plan sponsored
and managed
by
Frontier Communications Corporation (“Frontier” or the “Company”
or the “Plan Administrator”
)
.
Under the terms of the Plan,
non-salaried
employees
,
including those that were eligible under the
Verizon Communications Inc. (“Verizon”)
Plan
on
June 30, 2010
,
are eligible to participate
in the P
lan
provided that the employee is employed by a participating employer in an eligible class of employees.
Generally, salaried employees, l
eased employees, individuals not on the employer’s payroll, and
employees of Frontier or any other Frontier
c
ompany other than Frontier Communications Corporate Services Inc.
are ineligible to participate. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
On July 1, 2010,
Frontier
acquired the defined assets and liabilities of the local exchange business and related landline activities of
Verizon
in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin and in portions of California bordering Arizona, Nevada and Oregon, including
i
nternet access and long
distance services and
video provided to designated customers in those territories.
On April 1, 2016, Frontier acquired certain properties from Verizon in California, Texas, and Florida
(“the CTF Acquisition”)
pursuant to the February 5, 2015 Securities Purchase Agreement, as amended.
Under the terms of the agreements between Verizon and Frontier, Frontier established
this
benefit plan for former Verizon employees who were transferred to Frontier that provides benefits that are identical in all material respects to the benefits received by them under the Verizon Savings and Security Plan for Mid-Atlantic Associates (“the Verizon Plan”).
On
January 25, 2017
,
members of Communications Workers of America, (“CWA” or “Union”) St. Mary’s local 2001 and Bluefield local 2276 in West Virginia
were transferred into
the Plan
.
(b)
Contributions
Eligible employees may contribute, in
1
% increments, up to
25
% of their
eligible compensation on a before
-
tax basis, an after-tax basis or a combination of both
through payroll deductions, subject to certain maximum contribution restrictions.
The maximum contribution allowed for deferral for U.S
.
federal income tax purposes in
201
8
was $
18,500
.
All employees eligible to make contributions under the Plan and who have attained or will attain age 50 before the close of the Plan year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Internal Revenue Code (“
IRC
”).
The maximum allowable catch-up contribution for
201
8
was $
6,000
.
No matching contributions
are
made with respect to a
p
articipant’s catch-up contributions.
FRONTIER COMMUNICATIONS CORPORATE SERVICES INC.
SAVINGS AND SECURITY PLAN FOR MID-ATLANTIC ASSOCIATES
Notes to Financial Statements
December 31, 2018 and 2017
Frontier
contributes
$0.82 on each dollar
contributed by a participant
hired prior to
August 29, 2014
and
$1.00 on each dollar contribute
d by a participant hired after August 29,
2014 in each case
up to 6% of each participant’s eligible compensation.
Frontier
contributions are allocated to Plan investments following the same method of allocation as that for participant-directed investments. In addition
,
Frontier
may elect to contribute a Discretionary Contribution of up to 3% of salary for eligible employees.
(c)
Participant Accounts
Each participant’s account is credited with the participant’s contribution
s
and an allocation of (a)
Frontier’s
contribution and (b)
investment
earnings or losses
,
and charged with
withdrawals and
an allocation of administrative expenses
.
Allocations are based on each partic
ipant’s investment election(s)
. The benefit to which a participant is entitled is the amount that can be provided from the participant’s vested account.
(d)
Vesting
Participants are vested immediately in their
individual
contributions plus the allocated earnings thereon. Part
icipants become 100% vested in Frontier
contributions and the related earnings on
Frontier
contributions upon disability, death
or
attainment of normal retirement age
while an employee
.
F
or any other termination of employment,
Frontier
contributions and related earnings
fully
vest after three years of service.
(e)
Notes Receivable from Participants
Participants in the Plan may request to borrow up to the lesser of 50% of their vested account balance or $50,000. The interest rate paid by the participant is equal to the prime interest rate in effect at the
beginning
of the month
prior to
which the loan is processed and remains fixed at that rate for the term of the loan.
However, the interest rate paid by the participant is equal to the prime interest rate in effect at the beginning of the month in which the loan is processed plus 1% for the purchase of a primary residence.
The maximum loan repayment period is five years, or
currently
up to
fifteen
years
for the purchase of a primary residence.
Loan repayments are after tax, and are credited to each
p
articipant’s account as the payments are made. A participant may repay a loan in full at any time by remitting his/her payment directly to the trustee of the Plan
, Fidelity Management Trust Company (the “Trust
ee
”)
.
Any distribution following a participant’s termination of employment is reduced by any loan balance outstanding at the time of such distribution.
(f)
Payment of Benefits
P
articipants
may
keep any portion of their account in the Plan beyond the attainment of age 70 ½.
Inactive participants
, after
age 70 ½
,
must take
the required minimum
distribution of their balances on or before April 1st of the calendar year after they retire.
Upon termination of employment
or permanent disability
, a participant is entitled to receive
a lump-sum distribution in cash
,
or stock for any balance invested in the Frontier
Communications Corporation Common
Stock Fund
,
for
the vested portion of his/her account.
Participants may also elect to receive
between 2
and
20 annual installments or monthly installments over a period equal to the life expectancy of the participant.
If the value of the terminating participant's vested account balance
does not
exceed $
3,500
, the participant
’
s balance will be distributed automatically at
that
time.
In-service withdrawals
from a participant’s vested account balance
are also permitted under limited circumstances such as attaining age 59
½
or financial hardship.
FRONTIER COMMUNICATIONS CORPORATE SERVICES INC.
SAVINGS AND SECURITY PLAN FOR MID-ATLANTIC ASSOCIATES
Notes to Financial Statements
December 31, 2018 and 2017
(g)
Forfeitures
Forfeitures of nonvested
Frontier
contributions are applied to reduce
future contributions of
Frontier
.
Forfeited nonvested Frontier contributions of approximately $
100,000
were used to fund Frontier contributions for the year ended December 31, 201
8
.
As of
December 31,
201
8
,
forfeited nonvested
Frontier
contributions
that remain
ed
to be used by Frontier
totaled
approximately
$
62,000
.
(h)
Administrative
Expenses
The administrative expense
s
of the Plan are paid by the
P
lan or by
Frontier
.
The majority of Plan administrative
expenses
paid by
p
articipants
relate to
investment management fees
which are deducted from participant account balances.
(i
)
Dividends
Dividends attributable to the participant’s interest in the Frontier Communications Corporation Common Stock Fund
a
re reinvested in the Frontier Communications Corporation Common Stock Fund, unless the participant elect
s
, in a manner approved by the Retirement Plan Committee of the Frontier Board of Directors, to receive dividends entirely in cash. All cash dividends
a
re received by the Trustee, and distributed to participants in cash no later than 90 days after the close of the Plan year.
In 2018 Frontier’s Board of Directors suspended the quarterly cash dividend on the Company’s common stock and no dividends were paid in 2018.
(
j
)
Investment
T
he Plan’s investments are in
a
Master Trust
, which provides
for the i
nvestment of assets of the Plan
and
another
Fro
ntier sponsored retirement plan
. Each participating retirement plan has an undivided interest in the Master Trust. The assets of the Master Trust are held by the Trustee
,
who is responsible for the control and disbursement of the funds and portfolios of the Plan. Investment fees are charged against the earnings of the funds and portfolios.
Interest, dividends and
net
de
preciation
in the fair value of investments are allocated to the Plan on a daily basis based upon the Plan’s participation in the various investment funds and portfolios that comprise the Master Trust as a percentage of the total participation in such funds and portfolios.
E
ffective April 30, 2018 the Verizon Stock Fund (the “Stock Fund”)
was
removed as an investment option in the Plan. Participants
that were
invested in the Stock Fund
had to
decide whether to exchange all or a portion of their balance in the fund to another investment option or withdraw their available stock fund balance prior to April 30, 2018. If participants did not make an election to exchange their available Stock Fund these funds were liquidated and
the
cash proceeds
were
invested in the Fidelity Freedom Funds based on current age of participant assuming a retirement age of 65.
A participant
is restricted from investing more than 15% of
a participant’s balance or
current contributions in
the
Frontier
Communications Corporation
Common Stock Fund.
(
k
)
Registered Investment Company
Fees
Investments in
r
egistered
investment companies
(mutual f
unds)
are subject to sales charges and annual fees for marketing and distribution costs of the funds. These fees are deducted prior to the allocation of the investment earnings activity and thus not separately identifiable as an expense of the Plan.
FRONTIER COMMUNICATIONS CORPORATE SERVICES INC.
SAVINGS AND SECURITY PLAN FOR MID-ATLANTIC ASSOCIATES
Notes to Financial Statements
December 31, 2018 and 2017
(2)
Summary of Significant Accounting Policies
(a
)
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of accounting.
(b)
Use of Estimates
The preparation of
the
Plan’s
financial statements in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”)
requires management to make estimates and assumptions that affect the reported amount of assets, liabilities,
and
changes therein, and disclosures of contingent assets and liabilities
.
Actual results may differ from these estimates.
(c)
Investments
The
Master Trust’s
investments are stated at fair value.
Shares of
registered investment companies
and money market funds
are valued at quoted market prices, which represent the net asset value of shares held by the
Master Trust
.
The Plan’s interest in collective trusts are valued
at Net Asset Value (
“
NAV
”
)
based on information reported by the investment advisor using the audited financial statements of the collective trust at year-end.
The NAV is used as a practical expedient to estimate fair value.
Common stock is valued at its quoted market price as of the end of the Plan year.
In addition, the Plan offers a brokerage option,
BrokerageL
ink
, whereby participants invest in publicly traded
registered investment companies
not offered directly by the
Plan
.
P
urchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on the
ex-
dividend date.
The net
de
preciation
in fair value
of investments
in the Master Trust
consists of the net realized gains and losses on the disposal of investments during
201
8
and the net unrealized
de
preciation of the market value for the investments remaining in the
Master Trust
as of December 31,
201
8
.
(
d
)
Payment of
Benefits
Benefits
to participants
are recorded when paid.
(
e
)
Notes Receivable from Participants
Notes receivable from participants
are stated at their unpaid principal balances plus any accrued but unpaid interest. Delinquent
notes receivable
are
reclassified
as distributions based
upon
the terms of the
P
lan document
.
(
f
)
Revenue Credit Account
The Plan has a revenue credit account which is a suspense account funded with excess revenue generated by the Plan
through October 1, 2018
.
These funds may be used to pay plan expenses or allocated to each participant who has an account balance at the time of allocation.
After October 1, 2018, any revenue credits that are generated from specific funds are passed back to the participants holding those funds.
FRONTIER COMMUNICATIONS CORPORATE SERVICES INC.
SAVINGS AND SECURITY PLAN FOR MID-ATLANTIC ASSOCIATES
Notes to Financial Statements
December 31, 2018 and 2017
(g)
Recent Accounting Pronouncements
In February 2017, the Financial Accounting Standards Board (
“
FASB
”
) issued Accounting Standards Update (
“
ASU
”
) No. 2017-06, Plan Accounting: Defined Benefit Pension Plans (
“
Topic 960
”
) Defined Contribution Pension Plans (
“
Topic 962
”
) Health and Welfare Benefit Plans (
“
Topic 965
”
), Employee Benefit Plan Master Trust Reporting.
The amendments in this
u
pdate clarify presentation requirements for a plan’s interest in a master trust and require more detailed disclosures of the plan’s interest in the master trust. The amendments in this update are effective for fiscal years beginning after December 15, 2018. Early adoption is
permitted
and requires retrospective presentation for all periods in which financial statements are presented. The Plan has elected not to adopt for the current plan year, and is reviewing the impact that adoption would have on its financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this new guidance remove, modify, and add certain disclosure requirements related to fair value measurements covered in Topic 820. The new standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. The Plan has elected not to adopt for the current plan year and is reviewing the impact the adoption would have on its disclosures.
(3)
Investment in Master Trust
The Plan’s specific interest in the Master Trust is credited or charged for contributions, transfers and benefit payments relating to its participants. Realized gains and losses and changes in net unrealized
de
preciation on investments, income from investments and expenses are allocated to the Plan based on the Plan’s specific interest in the net assets of the Master Trust. At December 31,
201
8
and
201
7
, the Plan’s interest in the net assets of the
Master Trust was approximately
6
%
and 5%, respectively
.
The following table presents the fair values of investments for the Master Trust as of December 31,
201
8
and
201
7
:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Frontier Communications
|
|
|
|
|
|
|
|
Corporation Common Stock
|
|
$
|
1,581,567
|
|
$
|
3,525,506
|
|
Verizon Communications Inc.
|
|
|
|
|
|
|
|
Common Stock
|
|
|
-
|
|
|
261,564,299
|
|
AT&T Inc. Common Stock
|
|
|
-
|
|
|
92,161,942
|
|
BrokerageLink Common Stock
|
|
|
338,507
|
|
|
351,090
|
|
Registered Investment Companies
|
|
|
2,219,250,276
|
|
|
2,218,964,259
|
|
Collective Trusts
|
|
|
235,326,125
|
|
|
249,044,085
|
|
Money Market Funds
|
|
|
23,950,875
|
|
|
15,663,567
|
|
Investments, at fair value
|
|
|
2,480,447,350
|
|
|
2,841,274,748
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
63
|
|
|
527,509
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,480,447,413
|
|
$
|
2,841,802,257
|
|
|
|
|
|
|
|
|
|
FRONTIER COMMUNICATIONS CORPORATE SERVICES INC.
SAVINGS AND SECURITY PLAN FOR MID-ATLANTIC ASSOCIATES
Notes to Financial Statements
December 31, 2018 and 2017
Investment
income (
loss
)
of the Master Trust for the
year
ended December 31,
201
8
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net depreciation in fair value
|
|
|
|
|
|
of investments
|
|
$
|
(338,810,388)
|
|
|
Interest and dividends
|
|
|
163,019,400
|
|
|
|
|
|
|
|
|
|
|
$
|
(175,790,988)
|
|
|
|
|
|
|
|
Fair value is defined under U.S. GAAP as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value under U.S. GAAP must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The input levels in the hierarchy
of fair value measurements are
as follows:
|
|
Input Level
|
Description of Input
|
Level 1
|
Observable inputs such as quoted prices in active markets for identical assets.
|
Level 2
|
Inputs other than quoted prices in active markets that are either directly or indirectly observable.
|
Level 3
|
Unobservable inputs in which little or no market data exists.
|
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
T
he following table
s
represent the Master Trust’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31,
201
8
and
201
7
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Trust Fair Value Measurements at December 31, 2018
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Frontier Communications Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
$
|
1,581,567
|
|
$
|
1,581,567
|
|
$
|
-
|
|
$
|
-
|
BrokerageLink Common Stock
|
|
|
338,507
|
|
|
338,507
|
|
|
-
|
|
|
-
|
Registered Investment Companies
|
|
|
2,219,250,276
|
|
|
2,219,250,276
|
|
|
-
|
|
|
-
|
Collective Trusts
(a)
|
|
|
235,326,125
|
|
|
-
|
|
|
-
|
|
|
-
|
Money Market Funds
|
|
|
23,950,875
|
|
|
23,950,875
|
|
|
-
|
|
|
-
|
Total investments at fair value
|
|
$
|
2,480,447,350
|
|
$
|
2,245,121,225
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRONTIER COMMUNICATIONS CORPORATE SERVICES INC.
SAVINGS AND SECURITY PLAN FOR MID-ATLANTIC ASSOCIATES
Notes to Financial Statements
December 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Trust Fair Value Measurements at December 31, 2017
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Frontier Communications Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
$
|
3,525,506
|
|
$
|
3,525,506
|
|
$
|
-
|
|
$
|
-
|
Verizon Communications Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
261,564,299
|
|
|
261,564,299
|
|
|
-
|
|
|
-
|
AT&T Inc. Common Stock
|
|
|
92,161,942
|
|
|
92,161,942
|
|
|
-
|
|
|
-
|
BrokerageLink Common Stock
|
|
|
351,090
|
|
|
351,090
|
|
|
-
|
|
|
-
|
Registered Investment Companies
|
|
|
2,218,964,259
|
|
|
2,218,964,259
|
|
|
-
|
|
|
-
|
Collective Trusts
(a)
|
|
|
249,044,085
|
|
|
-
|
|
|
-
|
|
|
-
|
Money Market Funds
|
|
|
15,663,567
|
|
|
15,663,567
|
|
|
-
|
|
|
-
|
Total investments at fair value
|
|
$
|
2,841,274,748
|
|
$
|
2,592,230,663
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
a)
In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Master Trust.
(
4
)
Party
-in Interest
Transactions
Certain
investments in the Master Trust
are
in shares of
registered investment companies
and
a collective trust
that
are
managed by an entity related to
Fidelity Management Trust Company
.
Fidelity Management Trust Company
acts
as
the trustee as defined by the Plan
and
,
therefore
,
transactions
involving these asset
s
qualify as party-in-interest transactions.
Notes receivable from participants
also qualify as party-in-interest
transactions.
The Master Trust held
Frontier
Communications Corporation C
ommon
S
tock amounting to
$
1,581,567
and
$
3,525,506
as of December 31,
201
8
and
201
7
, respectively
.
(
5
)
Plan Termination
Although it has not expressed any intention to do so,
Frontier
has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA, Collective Bargaining Agreements and the National Labor Relations
Act
. In the event of plan termination, participants will become 100% vested in their accounts.
(
6
)
Tax Status
The Plan received a favorable determination letter from the Internal Revenue Service dated November 17, 2017, indicating that it meets the requirements of Section 401(a) and 501(a) of the IRC and has qualified status as an employee retirement plan.
U.S. GAAP
require
s
plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the
P
lan has taken an uncertain position that more likely than not would not be sustained upon examination by a government authority. The
P
lan
A
dministrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31,
201
8
, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements.
FRONTIER COMMUNICATIONS CORPORATE SERVICES INC.
SAVINGS AND SECURITY PLAN FOR MID-ATLANTIC ASSOCIATES
Notes to Financial Statements
December 31, 2018 and 2017
(
7
)
Risks and Uncertainties
The Plan offers a number of investment options including
Frontier’s
common stock and a variety of pooled investment funds, some of which are registered investment companies. The investment funds principally include U.S. equities, international equities, and fixed income securities. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with these investments, it is at least reasonably possible that changes in their values will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statement
s
of Net Assets Available for Benefits.
The
Master Trust’s
exposure to a concentration of issuer risk is limited by the diversification of investments across all participant-directed fund elections except for the Frontier Communications Corporation Common Stock Fund
,
which
is
invested in the security of a single issuer. Additionally, the investments within certain participant-directed fund elections may be further diversified into varied financial instruments.