Quarterly Report (10-q)

Date : 05/02/2019 @ 9:27PM
Source : Edgar (US Regulatory)
Stock : Frontier Communications Corp. (FTR)
Quote : 1.31  -0.08 (-5.76%) @ 5:00AM

Quarterly Report (10-q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



FORM 10-Q



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



For the quarterly period ended Ma r ch 31, 2019



or



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



For the transition period from _________to__________



Commission file number:  001-11001



C:/USERS/BIANTORN/DESKTOP/LOGO.GIF



FRONTIER COMMUNICATIONS CORPORATION

( Exact name of registrant as specified in its charter )





 

 

Delaware

 

06-0619596

(State or other jurisdiction of

 

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

incorporation or organization)

 

 



 

 

401 Merritt 7

 

 

Norwalk, Connecticut  

 

06851

(Address of principal executive offices)

 

(Zip Code)

(203) 614-5600

(Registrant's telephone number, including area code)



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





 

 

 

 

Title of each class

 

Name of each exchange on which registered

 

Ticker Symbol

Common Stock, par value $0.25 per share

 

The NASDAQ Stock Market LLC

 

FTR



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         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       No  



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



Large accelerated filer               Accelerated filer                Non-accelerated filer  

Smaller reporting company               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    



The number of shares outstanding of the registrant’s Common Stock as of April 26 , 2019 was 105,291, 000 .

 

 


 

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES



Table of Contents





 



Page

Part I.  Financial Information (Unaudited)

 



 

Item 1.  Financial Statements

 



 

Consolidated Balance Sheets as of March 31, 2019 and December 31, 201 8

2



 

Consolidated Statements of Operations for the three months ended March 31, 2019   and 201 8

3



 

Consolidated Sta tements of Comprehensive Income ( Loss )   for the three   months ended   March 31, 2019 and 201 8

 

4



 

Consolidated Statement s of Equity for the three   months ended March 31, 2019 and 2018

5



 

Consolidated Statements of Cash Flows for the three months ended March 31, 201 9 and 201 8

6



 

Notes to Consolidated Financial Statements

7



 

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

3 4



 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

46



 

Item 4.  Controls and Procedures

47



 

Part II.  Other Information

 



 

Item 1.  Legal Proceedings

48



 

Item 1A.  Risk Factors

48



 

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

49



 

Item 6.  Exhibits

5 0



 

Signature

51



 

 

1

 


 

 

 

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)

 

 

 



 

March 31, 2019

 

December 31, 2018

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

119 

 

$

354 

Accounts receivable, less allowances of $91 and $105 , respectively

 

 

715 

 

 

723 

Contract acquisition costs

 

 

111 

 

 

107 

Prepaid expenses

 

 

104 

 

 

86 

Income taxes and other current assets

 

 

61 

 

 

60 

Total current assets

 

 

1,110 

 

 

1,330 



 

 

 

 

 

 

Property, plant and equipment, net

 

 

14,034 

 

 

14,187 

Goodwill

 

 

6,383 

 

 

6,383 

Other intangibles, net

 

 

1,364 

 

 

1,494 

Other assets

 

 

471 

 

 

265 

Total assets

 

$

23,362 

 

$

23,659 



 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Long-term debt due within one year

 

$

393 

 

$

814 

Accounts payable

 

 

473 

 

 

495 

Advanced billings

 

 

260 

 

 

256 

Accrued other taxes

 

 

198 

 

 

182 

Accrued interest

 

 

226 

 

 

381 

Pension and other postretirement benefits

 

 

39 

 

 

39 

Other current liabilities

 

 

421 

 

 

394 

Total current liabilities

 

 

2,010 

 

 

2,561 



 

 

 

 

 

 

Deferred income taxes

 

 

1,132 

 

 

1,109 

Pension and other postretirement benefits

 

 

1,733 

 

 

1,750 

Other liabilities

 

 

426 

 

 

281 

Long-term debt

 

 

16,526 

 

 

16,358 



 

 

 

 

 

 

Equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

106,025   issued and 105,307 and 105,536 outstanding,

 

 

 

 

 

 

at March 31, 2019 and December 31, 2018, respectively)

 

 

27 

 

 

27 

Additional paid-in capital

 

 

4,805 

 

 

4,802 

Accumulated deficit

 

 

(2,749)

 

 

(2,752)

Accumulated other comprehensive loss, net of tax

 

 

(534)

 

 

(463)

Treasury common stock

 

 

(14)

 

 

(14)

Total equity

 

 

1,535 

 

 

1,600 

Total liabilities and equity

 

$

23,362 

 

$

23,659 



 

 

 

 

 

 



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



2

 


 

 

 







PART I. FINANCIAL INFORMATION (Continued)



FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31 , 201 9 AND 201 8

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

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months ended



 

March 31,



 

 

 

 

 

 



 

2019

 

2018



 

 

 

 

 

 

Revenue

 

$

2,101 

 

$

2,199 



 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Network access expenses

 

 

338 

 

 

372 

Network related expenses

 

 

456 

 

 

483 

Selling, general and administrative expenses

 

 

456 

 

 

469 

Depreciation and amortization

 

 

484 

 

 

505 

Restructuring costs and other charges

 

 

28 

 

 

Total operating expenses

 

 

1,762 

 

 

1,833 



 

 

 

 

 

 

Operating income

 

 

339 

 

 

366 



 

 

 

 

 

 

Investment and other income (loss), net

 

 

(9)

 

 

Gain (loss) on extinguishment of debt

 

 

(20)

 

 

33 

Interest expense

 

 

379 

 

 

374 



 

 

 

 

 

 

Income (loss) before income taxes

 

 

(69)

 

 

33 

Income tax expense

 

 

18 

 

 

13 



 

 

 

 

 

 

Net income (loss)

 

 

(87)

 

 

20 

Less: Dividends on preferred stock

 

 

 -

 

 

53 

Net loss attributable to

 

 

 

 

 

 

Frontier common shareholders

 

$

(87)

 

$

(33)



 

 

 

 

 

 

Basic and diluted net loss per share

 

 

 

 

 

 

attributable to Frontier common shareholders

 

$

(0.84)

 

$

(0.44)



 

 

 

 

 

 



 

 

 

 

 

 

Total weighted average shares outstanding - basic and diluted

 

 

103,885 

 

 

77,416 



 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 









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

3

 


 

 

 

PART I. FINANCIAL INFORMATION (Continued)



CONSOLIDATED STATEMENTS OF COMPREHENSIVE   INCOME ( LOSS )

FOR THE THREE MONTHS ENDED MARCH 31, 201 9 AND 201 8

($ in millions)

(Unaudited)









 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

For the three months ended



 

 

March 31,



 

 

 

 

 

 

 



 

 

2019

 

2018



 

 

 

 

 

 

 

Net income (loss)

 

 

$

(87)

 

$

20 

Other comprehensive income (loss), net of tax

 

 

 

 

 

(1)



 

 

 

 

 

 

 

Comprehensive income (loss)

 

 

$

(79)

 

$

19 







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



4

 


 

 

 

PART I. FINANCIAL INFORMATION (Continued)



FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT S OF EQUITY

FOR THE THREE   MONTHS ENDED MARCH 31, 2019   AND 2018

($ in millions and shares in thousands)

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended March 31, 2019



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2019

 

 -

 

$

 -

 

106,025 

 

$

27 

 

$

4,802 

 

$

(2,752)

 

$

(463)

 

(489)

 

$

(14)

 

$

1,600 

ASC 842 transition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

adjustment

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

11 

 

 

 -

 

 -

 

 

 -

 

 

11 

Impact of adoption of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASU 2018-02

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

79 

 

 

(79)

 

 -

 

 

 -

 

 

 -

Stock plans

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

(229)

 

 

 -

 

 

Net loss

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

(87)

 

 

 -

 

 -

 

 

 -

 

 

(87)

Other comprehensive income,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 -

 

 

 -

 

 

Balance at March 31, 2019

 

 -

 

$

 -

 

106,025 

 

$

27 

 

$

4,805 

 

$

(2,749)

 

$

(534)

 

(718)

 

$

(14)

 

$

1,535 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended March 31, 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 

 

 

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 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





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

5

 


 

 

 



PART I. FINANCIAL INFORMATION (Continued)



FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 201 8

($ in millions)

(Unaudited)









 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months ended March 31,



 

2019

 

2018



 

 

 

 

 

 

Cash flows provided from (used by) operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

(87)

 

$

20 

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

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

484 

 

 

505 

(Gain) loss on extinguishment of debt

 

 

20 

 

 

(33)

Stock-based compensation expense

 

 

 

 

Amortization of deferred financing costs

 

 

 

 

Other adjustments

 

 

 -

 

 

(9)

Deferred income taxes

 

 

16 

 

 

12 

Change in accounts receivable

 

 

 

 

Change in accounts payable and other liabilities

 

 

(157)

 

 

(261)

Change in prepaid expenses, income taxes and other assets

 

 

(13)

 

 

(5)

Net cash provided from operating activities

 

 

282 

 

 

251 



 

 

 

 

 

 

Cash flows provided from (used by) investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(305)

 

 

(297)

Proceeds on sale of assets

 

 

74 

 

 

10 

Other

 

 

 -

 

 

(2)

Net cash used by investing activities

 

 

(231)

 

 

(289)



 

 

 

 

 

 

Cash flows provided from (used by) financing activities:

 

 

 

 

 

 

Long-term debt payments

 

 

(1,995)

 

 

(1,627)

Proceeds from long-term debt borrowings

 

 

1,650 

 

 

1,600 

Proceeds from revolving debt

 

 

375 

 

 

 -

Repayment of revolving debt

 

 

(275)

 

 

 -

Financing costs paid

 

 

(30)

 

 

(26)

Premium paid to retire debt

 

 

 -

 

 

(16)

Dividends paid on preferred stock

 

 

 -

 

 

(53)

Finance lease obligation payments

 

 

(8)

 

 

(10)

Other

 

 

(3)

 

 

(5)

Net cash used by financing activities

 

 

(286)

 

 

(137)



 

 

 

 

 

 

Decrease in cash, cash equivalents, and restricted cash

 

 

(235)

 

 

(175)

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

 

 

404 

 

 

376 



 

 

 

 

 

 

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

 

$

169 

 

$

201 



 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

Interest

 

$

525 

 

$

593 

Income tax payments (refunds), net

 

$

 -

 

$

 -





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



 

6

 


 

 

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, 201 8 . 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 March 31, 2019 , 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 one 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:  

Except for the adoption of the new lease standard and application of certain tax effects related to the Tax Cuts and Jobs Act , Frontier has consistently applied the accounting policies to all periods presented in these unaudited consolidated financial statements. Refer to notes 2 and 10 for additional discussion.



c)

Revenue Recognition :  

Revenue for Voice services, Data & Internet services, Video services, 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.

7

 


 

 

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.



Customer Incentives

In the process of acquiring and/or retaining customers, we may issue a variety of incentives aside from service discounts or cash equivalent incentives. Those incentives that have stand-alone value (e.g . gift cards not considered cash equivalents or free goods/services) are considered 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 expense s ”, 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 must be 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 accrued, 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

C ertain costs to acquire customers must be deferred and amortized over the expected customer life (average of 3.8 years). For Frontier, this includes certain commissions paid to acquire new customers. C ommissions 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 $53   million and $57 million for the three months ended March 3 1 , 2019 and 2018, respectively, and video franchise fees , which amounted to   $11   million and $12 million for the three months ended March 31, 2019 and 2018, respectively, that we 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

8

 


 

 

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

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)

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 March 31, 2019 and December 31, 201 8 . This amount represents funds held as collateral by a bank against letters of credit issued predominately to insurance carriers.



e)

Goodwill and Other Intangibles:  

Goodwill represents the excess of purchase price over the fair value of identifiable tangible and intangible net assets acquired in a business combination. We evaluate 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” level, as that term is defined in GAAP.   We determined that we have one operating segment based on a number of factors that our management uses to evaluate and run our business operations, including similarities of customers, products and technology .



Frontier amortizes finite-lived intangible assets over their estimated useful lives on the accelerated method of sum of the years digits.



f)

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 may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease s 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 “ O t her 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 .







(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, l essees 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.



9

 


 

 

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

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 10 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.



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. It expands the scope of ASC 718 to include share-based payments granted to nonemployees and supersedes the guidance in ASC 505-50. Frontier adopted this standard update as of January 1, 2019 which resulted in an immaterial impact to 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”, 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.



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. Frontier is currently evaluating the impact of the adoption of this standard on our disclosures.



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.





10

 


 

 

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

(3)      Revenue Recognition :



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



Data and I nternet 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 revenues generated from services provided directly to residential customers through the FiOS ® and Vantage video brands, and through DISH ® satellite TV services;



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 a ccess 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.



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











 

 

 

 

 

 



 

 

 

 

 

 



For the three months ended March 31,

 

($ in millions)

2019

 

2018

 



 

 

 

 

 

 

Data and Internet services

$

967 

 

$

985 

 

Voice services

 

650 

 

 

702 

 

Video services

 

268 

 

 

280 

 

Other

 

124 

 

 

135 

 

Revenue from contracts with customers (1)

 

2,009 

 

 

2,102 

 

Subsidy revenue

 

92 

 

 

97 

 

Total revenue

$

2,101 

 

$

2,199 

 



 

 

 

 

 

 



For the three months ended March 31,

 

($ in millions)

2019

 

2018

 



 

 

 

 

 

 



 

 

 

 

 

 

Consumer

$

1,077 

 

$

1,128 

 

Commercial

 

932 

 

 

974 

 

Revenue from contracts with customers (1)

 

2,009 

 

 

2,102 

 

Subsidy revenue

 

92 

 

 

97 

 

Total revenue

$

2,101 

 

$

2,199 

 



 

 

 

 

 

 

(1)

Amount includes approximately $18 million of lease revenue for the three months ended March 31, 2019.







11

 


 

 

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 



The opening and closing balances of Frontier’s contract asset and contract liability balances for the three months ended March 31, 2019 and 2018 are as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

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

 

 

(10)

 

 

(4)

 

 

(20)

 

 

(5)

 

Cash received, excluding amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

recognized as revenue

 

 

 -

 

 

 -

 

 

18 

 

 

 

Credits granted, excluding amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

recognized as revenue

 

 

11 

 

 

 

 

 -

 

 

 -

 

Balance at March 31, 2019

 

$

45 

 

$

22 

 

$

47 

 

$

20 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

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

 

 

(11)

 

 

 -

 

 

(20)

 

 

(4)

 

Cash received, excluding amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

recognized as revenue

 

 

 -

 

 

 -

 

 

26 

 

 

 

Credits granted, excluding amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

recognized as revenue

 

 

10 

 

 

 -

 

 

 -

 

 

 -

 

Balance at March 31, 2018

 

$

39 

 

$

37 

 

$

47 

 

$

19 

 



 

 

 

 

 

 

 

 

 

 

 

 

 





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 sheet s .  



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 nine months)

 

$

2,289 

 

2020

 

 

1,489 

 

2021

 

 

600 

 

2022

 

 

291 

 

2023

 

 

169 

 

Thereafter

 

 

217 

 

Total

 

$

5,055 

 



 

 

 

 







12

 


 

 

PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 





(4)      Accounts Receivable :



The components of accounts receivable, net are as follows :