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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/05/22 Frontier Comms Parent, Inc. 10-Q 6/30/22 85:27M Certent, Inc./FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 8.62M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 30K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 30K
4: EX-32 Certification -- §906 - SOA'02 HTML 29K
10: R1 Document and Entity Information HTML 75K
11: R2 Consolidated Balance Sheets HTML 128K
12: R3 Consolidated Balance Sheets (Parenthetical) HTML 34K
13: R4 Consolidated Statements Of Income HTML 105K
14: R5 Consolidated Statements Of Comprehensive Income HTML 45K
15: R6 Consolidated Statements Of Equity (Deficit) HTML 95K
16: R7 Consolidated Statements Of Cash Flows HTML 128K
17: R8 Summary Of Significant Accounting Policies HTML 77K
18: R9 Recent Accounting Literature HTML 30K
19: R10 Revenue Recognition HTML 680K
20: R11 Accounts Receivable HTML 91K
21: R12 Property, Plant And Equipment HTML 144K
22: R13 Other Intangibles HTML 231K
23: R14 Fair Value Of Financial Instruments HTML 68K
24: R15 Long-Term Debt HTML 408K
25: R16 Restructuring Costs And Other Charges HTML 63K
26: R17 Investment And Other Income HTML 202K
27: R18 Stock Plans HTML 179K
28: R19 Income Taxes HTML 174K
29: R20 Net Earnings Per Share HTML 419K
30: R21 Comprehensive Income (Loss) HTML 539K
31: R22 Retirement Plans HTML 365K
32: R23 Commitments And Contingencies HTML 47K
33: R24 Summary Of Significant Accounting Policies HTML 89K
(Policy)
34: R25 Recent Accounting Literature (Policy) HTML 29K
35: R26 Revenue Recognition (Tables) HTML 668K
36: R27 Accounts Receivable (Tables) HTML 87K
37: R28 Property, Plant And Equipment (Tables) HTML 138K
38: R29 Other Intangibles (Tables) HTML 228K
39: R30 Fair Value Of Financial Instruments (Tables) HTML 64K
40: R31 Long-Term Debt (Tables) HTML 386K
41: R32 Restructuring And Other Charges (Tables) HTML 54K
42: R33 Investment And Other Income (Tables) HTML 198K
43: R34 Stock Plans (Tables) HTML 158K
44: R35 Income Taxes (Tables) HTML 167K
45: R36 Net Earnings Per Share (Tables) HTML 414K
46: R37 Comprehensive Income (Loss) (Tables) HTML 534K
47: R38 Retirement Plans (Tables) HTML 348K
48: R39 Summary Of Significant Accounting Policies HTML 65K
(Narrative) (Details)
49: R40 Revenue Recognition (Narrative) (Details) HTML 32K
50: R41 Revenue Recognition (Disaggregation Of Revenue) HTML 67K
(Details)
51: R42 Revenue Recognition (Changes In Contract Assets HTML 66K
And Contract Liabilities) (Details)
52: R43 Revenue Recognition (Performance Obligations, HTML 43K
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53: R44 Accounts Receivable (Narrative) (Details) HTML 30K
54: R45 Accounts Receivable (Accounts Receivable) HTML 35K
(Details)
55: R46 Accounts Receivable (Activity In The Allowance For HTML 32K
Credit Losses) (Details)
56: R47 Property, Plant And Equipment (Narrative) HTML 45K
(Details)
57: R48 Property, Plant, And Equipment (Property, Plant HTML 31K
And Equipment, Net) (Details)
58: R49 Property, Plant, And Equipment (Schedule Of HTML 27K
Depreciation Expense) (Details)
59: R50 Other Intangibles (Narrative) (Details) HTML 36K
60: R51 Other Intangibles (Schedule Of Intangible Assets) HTML 38K
(Details)
61: R52 Other Intangibles (Schedule Of Amortization HTML 27K
Expense) (Details)
62: R53 Fair Value Of Financial Instruments (Fair Value Of HTML 28K
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70: R61 Stock Plans (Narrative) (Details) HTML 57K
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Income Taxes) (Details)
75: R66 Net Earnings Per Share (Reconciliation Of Net Loss HTML 73K
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| fybr-20220630x10q |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
i x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i June 30, 2022
or
i ¨ 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: i 001-11001
i FRONTIER COMMUNICATIONS PARENT, INC.
(Exact name of registrant as specified in its charter)
|
|
|
i Delaware |
| i 86-2359749 |
(State or other jurisdiction of |
| (I.R.S. Employer Identification No.) |
incorporation or organization) |
|
|
|
|
|
i 401 Merritt 7 |
|
|
i Norwalk, i Connecticut |
| i 06851 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant's telephone number, including area code: ( i 203) i 614-5600
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
i Common Stock, par value $0.01 per share
|
| i FYBR |
| The i NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
i 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).
i 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):
i Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Smaller reporting company i ¨ Emerging growth company i ¨
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 i x
The number of shares outstanding of the registrant’s Common Stock as of August 1, 2022 was i 244,985,000.
FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES
|
|
| Page |
Part I. Financial Information (Unaudited) |
|
|
|
Item 1. Financial Statements |
|
|
|
Consolidated Balance Sheets as of June 30, 2022, and December 31, 2021 | 2 |
|
|
3 | |
|
|
4 | |
|
|
5 | |
|
|
6 | |
|
|
7 | |
|
|
8 | |
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 40 |
|
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 60 |
|
|
61 | |
|
|
Part II. Other Information |
|
|
|
62 | |
|
|
62 | |
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 62 |
|
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64 | |
|
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65 | |
|
|
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
($ in millions and shares in thousands, except for per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
| (Unaudited) |
|
|
| ||
|
|
|
|
| ||||
| ASSETS |
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
| Cash and cash equivalents |
| $ | i 678 |
| $ | i 2,127 |
|
| Short-term investments |
|
| i 2,300 |
|
| - |
|
| Accounts receivable, less allowances of $ i 45 and $ i 57, respectively |
|
| i 420 |
|
| i 458 |
|
| Prepaid expenses |
|
| i 79 |
|
| i 73 |
|
| Income taxes and other current assets |
|
| i 25 |
|
| i 30 |
|
| Total current assets |
|
| i 3,502 |
|
| i 2,688 |
|
|
|
|
|
|
|
|
|
|
| Property, plant and equipment, net |
|
| i 10,108 |
|
| i 9,199 |
|
| Other intangibles, net |
|
| i 4,067 |
|
| i 4,227 |
|
| Other assets |
|
| i 358 |
|
| i 367 |
|
| Total assets |
| $ | i 18,035 |
| $ | i 16,481 |
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
| Long-term debt due within one year |
| $ | i 15 |
| $ | i 15 |
|
| Accounts payable |
|
| i 818 |
|
| i 535 |
|
| Advanced billings |
|
| i 199 |
|
| i 197 |
|
| Accrued other taxes |
|
| i 174 |
|
| i 183 |
|
| Accrued interest |
|
| i 120 |
|
| i 76 |
|
| Pension and other postretirement benefits |
|
| i 46 |
|
| i 46 |
|
| Other current liabilities |
|
| i 407 |
|
| i 399 |
|
| Total current liabilities |
|
| i 1,779 |
|
| i 1,451 |
|
|
|
|
|
|
|
|
|
|
| Deferred income taxes |
|
| i 481 |
|
| i 387 |
|
| Pension and other postretirement benefits |
|
| i 1,427 |
|
| i 1,672 |
|
| Other liabilities |
|
| i 422 |
|
| i 403 |
|
| Long-term debt |
|
| i 9,130 |
|
| i 7,968 |
|
| Total liabilities |
|
| i 13,239 |
|
| i 11,881 |
|
|
|
|
|
|
|
|
|
|
| Equity: |
|
|
|
|
|
|
|
| Common stock, $ i i 0.01 / par value ( i i 1,750,000 / authorized shares, i i 244,969 / |
|
|
|
|
|
|
|
| and i i 244,416 / shares issued and outstanding at June 30, 2022 and |
|
|
|
|
|
|
|
| December 31, 2021, respectively) |
|
| i 2 |
|
| i 2 |
|
| Additional paid-in capital |
|
| i 4,152 |
|
| i 4,124 |
|
| Retained earnings |
|
| i 580 |
|
| i 414 |
|
| Accumulated other comprehensive income, net of tax |
|
| i 62 |
|
| i 60 |
|
| Total equity |
|
| i 4,796 |
|
| i 4,600 |
|
| Total liabilities and equity |
| $ | i 18,035 |
| $ | i 16,481 |
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF INCOME
($ in millions and shares in thousands, except for per-share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the three months |
| For the two months |
|
| For the one month |
| |||
|
|
| ended June 30, |
| ended June 30, |
|
| ended April 30, |
| |||
|
|
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
| $ | i 1,459 |
| $ | i 1,061 |
|
| $ | i 555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| Cost of service |
|
| i 546 |
|
| i 396 |
|
|
| i 210 |
|
| Selling, general, and administrative expenses |
|
| i 427 |
|
| i 269 |
|
|
| i 129 |
|
| Depreciation and amortization |
|
| i 290 |
|
| i 179 |
|
|
| i 119 |
|
| Restructuring costs and other charges |
|
| i 30 |
|
| i 11 |
|
|
| i 5 |
|
| Total operating expenses |
|
| i 1,293 |
|
| i 855 |
|
|
| i 463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
| i 166 |
|
| i 206 |
|
|
| i 92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment and other income (loss), net |
|
| i 122 |
|
| ( i 2) |
|
|
| ( i 1) |
|
| Reorganization items, net |
|
| - |
|
| - |
|
|
| i 4,196 |
|
| Interest expense (See Note 8) |
|
| ( i 118) |
|
| ( i 62) |
|
|
| ( i 29) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before income taxes |
|
| i 170 |
|
| i 142 |
|
|
| i 4,258 |
|
| Income tax expense (benefit) |
|
| i 69 |
|
| i 43 |
|
|
| ( i 223) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
| $ | i 101 |
| $ | i 99 |
|
| $ | i 4,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders |
| $ | i 0.41 |
| $ | i 0.41 |
|
| $ | i 42.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders |
| $ | i 0.41 |
| $ | i 0.41 |
|
| $ | i 42.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total weighted average shares outstanding - basic |
|
| i 244,723 |
|
| i 244,401 |
|
|
| i 104,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total weighted average shares outstanding - diluted |
|
| i 244,723 |
|
| i 244,401 |
|
|
| i 105,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF INCOME
($ in millions and shares in thousands, except for per-share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
| For the six months |
| For the two months |
|
| For the four months |
| |||
|
| ended June 30, |
| ended June 30, |
|
| ended April 30, |
| |||
|
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | i 2,906 |
| $ | i 1,061 |
|
| $ | i 2,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
Cost of service |
|
| i 1,099 |
|
| i 396 |
|
|
| i 830 |
|
Selling, general, and administrative expenses |
|
| i 862 |
|
| i 269 |
|
|
| i 537 |
|
Depreciation and amortization |
|
| i 574 |
|
| i 179 |
|
|
| i 506 |
|
Restructuring costs and other charges |
|
| i 84 |
|
| i 11 |
|
|
| i 7 |
|
Total operating expenses |
|
| i 2,619 |
|
| i 855 |
|
|
| i 1,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| i 287 |
|
| i 206 |
|
|
| i 351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income (loss), net |
|
| i 199 |
|
| ( i 2) |
|
|
| i 1 |
|
Reorganization items, net |
|
| - |
|
| - |
|
|
| i 4,171 |
|
Interest expense (See Note 8) |
|
| ( i 221) |
|
| ( i 62) |
|
|
| ( i 118) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| i 265 |
|
| i 142 |
|
|
| i 4,405 |
|
Income tax expense (benefit) |
|
| i 99 |
|
| i 43 |
|
|
| ( i 136) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | i 166 |
| $ | i 99 |
|
| $ | i 4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
attributable to Frontier common shareholders |
| $ | i 0.68 |
| $ | i 0.41 |
|
| $ | i 43.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
attributable to Frontier common shareholders |
| $ | i 0.68 |
| $ | i 0.41 |
|
| $ | i 43.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average shares outstanding - basic |
|
| i 244,592 |
|
| i 244,401 |
|
|
| i 104,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average shares outstanding - diluted |
|
| i 244,831 |
|
| i 244,401 |
|
|
| i 104,924 |
|
The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the three months |
| For the two months |
|
| For the one month |
| |||
|
|
| ended June 30, |
| ended June 30, |
|
| ended April 30, |
| |||
|
|
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
| $ | i 101 |
| $ | i 99 |
|
| $ | i 4,481 |
|
| Other comprehensive income, net of tax |
|
| i 4 |
|
| i 41 |
|
|
| i 348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive income |
| $ | i 105 |
| $ | i 140 |
|
| $ | i 4,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the six months |
| For the two months |
|
| For the four months |
| |||
|
|
| ended June 30, |
| ended June 30, |
|
| ended April 30, |
| |||
|
|
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
| $ | i 166 |
| $ | i 99 |
|
| $ | i 4,541 |
|
| Other comprehensive income, net of tax |
|
| i 2 |
|
| i 41 |
|
|
| i 359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive income |
| $ | i 168 |
| $ | i 140 |
|
| $ | i 4,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
($ in millions and shares in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the six months ended June 30, 2022 (Successor) |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| |
|
|
|
|
|
|
| Additional |
|
|
|
| Other |
|
|
| |||
|
| Common Stock |
| Paid-In |
| Retained |
| Comprehensive |
| Total |
| |||||||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Income |
| Equity |
| |||||
Balance at January 1, 2022 |
| i 244,416 |
| $ | i 2 |
| $ | i 4,124 |
| $ | i 414 |
| $ | i 60 |
| $ | i 4,600 |
|
Stock plans |
| i 60 |
|
| - |
|
| i 15 |
|
| - |
|
| - |
|
| i 15 |
|
Net income |
| - |
|
| - |
|
| - |
|
| i 65 |
|
| - |
|
| i 65 |
|
Other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loss, net of tax |
| - |
|
| - |
|
| - |
|
| - |
|
| ( i 2) |
|
| ( i 2) |
|
Balance at March 31, 2022 |
| i 244,476 |
| $ | i 2 |
| $ | i 4,139 |
| $ | i 479 |
| $ | i 58 |
| $ | i 4,678 |
|
Stock plans |
| i 493 |
|
| - |
|
| i 13 |
|
| - |
|
| - |
|
| i 13 |
|
Net income |
| - |
|
| - |
|
| - |
|
| i 101 |
|
| - |
|
| i 101 |
|
Other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income, net of tax |
| - |
|
| - |
|
| - |
|
| - |
|
| i 4 |
|
| i 4 |
|
Balance at June 30, 2022 |
| i 244,969 |
| $ | i 2 |
| $ | i 4,152 |
| $ | i 580 |
| $ | i 62 |
| $ | i 4,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the six months ended June 30, 2021 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Additional |
|
|
|
| Other |
| Treasury |
| Total |
| ||||||
|
| Common Stock |
| Paid-In |
| Accumulated |
| Comprehensive |
| Common Stock |
| Equity |
| ||||||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Income (Loss) |
| Shares |
| Amount |
| (Deficit) |
| ||||||
Balance at January 1, 2021 |
| i 106,025 |
| $ | i 27 |
| $ | i 4,817 |
| $ | ( i 8,975) |
| $ | ( i 755) |
| ( i 1,232) |
| $ | ( i 14) |
| $ | ( i 4,900) |
|
Stock plans |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| ( i 122) |
|
| ( i 1) |
|
| ( i 1) |
|
Net income |
| - |
|
| - |
|
| - |
|
| i 60 |
|
| - |
| - |
|
| - |
|
| i 60 |
|
Other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income, net of tax |
| - |
|
| - |
|
| - |
|
| - |
|
| i 11 |
| - |
|
| - |
|
| i 11 |
|
Balance at March 31, 2021 |
| i 106,025 |
| $ | i 27 |
| $ | i 4,817 |
| $ | ( i 8,915) |
| $ | ( i 744) |
| ( i 1,354) |
| $ | ( i 15) |
| $ | ( i 4,830) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock plans |
| - |
|
| - |
|
| i 1 |
|
| - |
|
| - |
| - |
|
| - |
|
| i 1 |
|
Net income |
| - |
|
| - |
|
| - |
|
| i 4,481 |
|
| - |
| - |
|
| - |
|
| i 4,481 |
|
Other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income, net of tax |
| - |
|
| - |
|
| - |
|
| - |
|
| i 348 |
| - |
|
| - |
|
| i 348 |
|
Cancellation of |
| ( i 106,025) |
|
| ( i 27) |
|
| ( i 4,818) |
|
| i 4,434 |
|
| i 396 |
| i 1,354 |
|
| i 15 |
|
| - |
|
Issuance of Successor |
| i 244,401 |
|
| i 2 |
|
| i 4,106 |
|
| - |
|
| - |
| - |
|
| - |
|
| i 4,108 |
|
Balance at April 30, 2021 |
| i 244,401 |
| $ | i 2 |
| $ | i 4,106 |
| $ | - |
| $ | - |
| - |
| $ | - |
| $ | i 4,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2021 |
| i 244,401 |
| $ | i 2 |
| $ | i 4,106 |
| $ | - |
| $ | - |
| - |
| $ | - |
| $ | i 4,108 |
|
Stock plans |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| - |
|
| - |
|
| - |
|
Net income |
| - |
|
| - |
|
| - |
|
| i 99 |
|
| - |
| - |
|
| - |
|
| i 99 |
|
Other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income, net of tax |
| - |
|
| - |
|
| - |
|
| - |
|
| i 41 |
| - |
|
| - |
|
| i 41 |
|
Balance at June 30, 2021 |
| i 244,401 |
| $ | i 2 |
| $ | i 4,106 |
| $ | i 99 |
| $ | i 41 |
| - |
| $ | - |
| $ | i 4,248 |
|
The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
|
|
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows provided from (used by) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| Net Income |
| $ | i 166 |
| $ | i 99 |
|
| $ | i 4,541 |
|
| Adjustments to reconcile net income to net cash provided |
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
| i 574 |
|
| i 179 |
|
|
| i 506 |
|
| Stock-based compensation expense |
|
| i 35 |
|
| - |
|
|
| ( i 1) |
|
| Non-cash reorganization items, net |
|
| - |
|
| - |
|
|
| ( i 5,467) |
|
| Lease Impairment |
|
| i 44 |
|
| - |
|
|
| - |
|
| Bad debt expense |
|
| i 14 |
|
| i 6 |
|
|
| - |
|
| Other adjustments |
|
| ( i 13) |
|
| ( i 5) |
|
|
| i 1 |
|
| Deferred income taxes |
|
| i 93 |
|
| i 37 |
|
|
| ( i 148) |
|
| Change in accounts receivable |
|
| i 24 |
|
| i 6 |
|
|
| i 36 |
|
| Change in pension and other post retirement liabilities |
|
| ( i 242) |
|
| i 12 |
|
|
| ( i 12) |
|
| Change in accounts payable and other liabilities |
|
| i 77 |
|
| i 39 |
|
|
| ( i 156) |
|
| Change in prepaid expenses, income taxes, and |
|
| ( i 15) |
|
| i 7 |
|
|
| i 46 |
|
| Net cash provided from (used by) operating activities |
|
| i 757 |
|
| i 380 |
|
|
| ( i 654) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows provided from (used by) investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| Capital expenditures |
|
| ( i 1,088) |
|
| ( i 269) |
|
|
| ( i 500) |
|
| Proceeds on sale of assets |
|
| i 1 |
|
| - |
|
|
| i 9 |
|
| Purchase of short-term investments |
|
| ( i 2,600) |
|
| - |
|
|
| - |
|
| Sale of short-term investments |
|
| i 300 |
|
| - |
|
|
| - |
|
| Other |
|
| i 2 |
|
| - |
|
|
| i 1 |
|
| Net cash used by investing activities |
|
| ( i 3,385) |
|
| ( i 269) |
|
|
| ( i 490) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows provided from (used by) financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt principal payments |
|
| ( i 7) |
|
| ( i 4) |
|
|
| ( i 1) |
|
| Proceeds from long-term debt borrowings |
|
| i 1,200 |
|
| - |
|
|
| i 225 |
|
| Financing costs paid |
|
| ( i 17) |
|
| - |
|
|
| ( i 4) |
|
| Finance lease obligation payments |
|
| ( i 10) |
|
| ( i 4) |
|
|
| ( i 7) |
|
| Taxes paid on behalf of employees for shares withheld |
|
| ( i 7) |
|
| - |
|
|
| - |
|
| Other |
|
| ( i 1) |
|
| i 1 |
|
|
| ( i 16) |
|
| Net cash provided from (used by) financing activities |
|
| i 1,158 |
|
| ( i 7) |
|
|
| i 197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increase (decrease) in cash, cash equivalents, and |
|
| ( i 1,470) |
|
| i 104 |
|
|
| ( i 947) |
|
| Cash, cash equivalents, and restricted cash at January 1, |
|
| i 2,178 |
|
| i 940 |
|
|
| i 1,887 |
|
| Cash, cash equivalents, and restricted cash at June 30, |
| $ | i 708 |
| $ | i 1,044 |
|
| $ | i 940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
| Interest |
| $ | i 198 |
| $ | i 84 |
|
| $ | i 84 |
|
| Income tax payments, net |
| $ | i 9 |
| $ | i 24 |
|
| $ | i 9 |
|
| Reorganization items, net |
| $ | - |
| $ | - |
|
| $ | i 1,397 |
|
The accompanying Notes are an integral part of these unaudited Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
i (1) Summary of Significant Accounting Policies:
a) i Basis of Presentation and Use of Estimates:
Frontier Communications Parent, Inc. and its subsidiaries are referred to as “we,” “us,” “our,” “Frontier,” or the “Company” in this report. Our interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2021. All significant intercompany balances and transactions have been eliminated in consolidation. These interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring accruals) considered necessary, in the opinion of Frontier’s management, to present fairly the results for the interim periods shown. Revenues, net income (loss), and cash flows for any interim periods are not necessarily indicative of results that may be expected for the full year.
We operate in i one reportable segment. Frontier provides both regulated and unregulated voice, data and video services to consumer, business, and wholesale customers and is typically the incumbent voice services provider in its service areas.
In 2021, we recategorized our previous operating expenses categories (“Network access expenses” and “Network related expense”) into one expense line: “Cost of service”. All historical periods presented have been updated to conform to the new categorization. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation. For our interim financial statements as of and for the period ended June 30, 2022, we evaluated subsequent events and transactions for potential recognition or disclosure through the date that we filed this Form 10-Q with the Securities and Exchange Commission (“SEC”).
The preparation of our interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the disclosure of contingent assets and liabilities, and (iii) the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Estimates and judgments are used when accounting for the application of fresh start accounting, allowance for credit losses, asset impairments, indefinite-lived intangibles, depreciation and amortization, income taxes, and pension and other postretirement benefits, among others.
Chapter 11 Bankruptcy Emergence
As described in Note 3 Emergence from the Chapter 11 Cases, and Note 4 Fresh Start Accounting, to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2021, on April 30, 2021, (the “Effective Date”), the Company emerged from bankruptcy. Accordingly, the consolidated financial information has been prepared in conformity with Accounting Standards Codification Subtopic 852-10 (ASC 852), Reorganizations, for the Successor as a new entity with assets, liabilities, and a capital structure having carrying amounts not comparable with prior periods.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Reorganization items incurred in the first four months of 2021 as a result of the Chapter 11 Cases included a gain on settlement of liabilities subject to compromise of $ i 5,274 million, fresh start valuation adjustment charges of $ i 1,038 million, debtor-in-possession financing costs of $ i 15 million and $ i 50 million in professional fees and other bankruptcy related costs presented separately in the accompanying consolidated statements of income.
The Company incurred significant costs associated with the reorganization, primarily legal and professional fees. Subsequent to April 14, 2020 (the “Petition Date”), these costs were expensed as incurred and significantly affected our consolidated results of operations. From the Petition Date to the Effective date, these costs were included in “Reorganization items, net” on our consolidated statement of income. For the periods prior to the Petition date and following the Effective Date, these costs have been included in “Restructuring costs and other charges” on our consolidated statement of income. Refer to Note 9.
Fresh Start Accounting
Upon emergence from bankruptcy, we adopted fresh start accounting in accordance with Accounting Standards Codification (ASC) Topic 852 – Reorganizations (ASC 852) and became a new entity for financial reporting purposes. As a result, the consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements on or before that date as indicated by the “black line” division in the financial statements and footnote tables, which emphasizes the lack of comparability between amounts presented. References to “Successor” relate to our financial position and results of operations after the Effective Date. References to “Predecessor” refer to the financial position and results of operations of Frontier Communications Corporation and its subsidiaries on or before the Effective Date (“Old Frontier”).
b) i Changes in Accounting Policies:
The accounting policy differences between Predecessor and Successor include:
Universal Service Fund and Other Surcharges - Frontier collects various taxes, Universal Service Fund (“USF”) surcharges (“primarily federal USF”), and certain other taxes, from its customers and subsequently remits them to governmental authorities. The Predecessor recorded USF and other taxes on a gross basis on the consolidated statement of income, included within “Revenue” and “Cost of service expense”. After emergence, the Successor records these USF and other taxes on a net basis.
Provision for Bad Debt – The Predecessor reported the provision for bad debt as a reduction of revenue. After emergence, the Successor reports bad debt expense as an operating expense included in “Selling, general, and administrative expenses”.
Contract Acquisition Costs - During the Predecessor period, certain commissions to obtain new customers were deferred and amortized over four years, which represented the estimated customer contract period. As a result of fresh start accounting, that assumption was reevaluated and the period of benefit for our retail customers was determined to be less than one year. As such, these costs are now expensed as incurred.
Actuarial Losses on Defined Benefit Plans - Historically, actuarial gains (losses) were recognized as they occurred and included in “Accumulated other comprehensive income (loss)” and were subject to amortization over the estimated average remaining service period of participants. As part of fresh start accounting, Frontier has made an accounting policy election to recognize these gains and losses immediately in the period they occur as “Investment and other income (loss)” on the consolidated statement of income.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Government Grants Revenue - Certain governmental grants that were historically presented on a net basis as part of capital expenditures, are now presented on a gross basis and included in ”Revenue” on the consolidated statement of income.
Administrative Expenses – Historically, the Predecessor capitalized certain administrative expenses, that following emergence, are expensed during the period incurred and included in “Selling, general, and administrative expense” on the consolidated statement of income.
c) i Revenue Recognition:
Satisfaction of Performance Obligations
Frontier satisfies its obligations to customers by transferring goods and services in exchange for consideration received from the customer. The timing of Frontier’s satisfaction of the performance obligation may differ from the timing of the customer’s payment.
Bundled Service and Allocation of Discounts
When customers purchase more than one service, revenue for each is determined by allocating the total transaction price based upon the relative stand-alone selling price of each service. We frequently offer service discounts as an incentive to customers, which reduce the total transaction price. Any incentives which are considered cash equivalents (e.g. gift cards) that are granted will similarly result in a reduction of the total transaction price. Cash equivalent incentives are accounted for on a portfolio basis and are recognized in the month they are awarded to customers.
Customer Incentives
In the process of acquiring and/or retaining customers, we may issue a variety of incentives aside from service discounts or cash equivalent incentives. Those incentives that have stand-alone value (e.g., gift cards not considered cash equivalents or free goods/services) are considered separate performance obligations. While these incentives are free to the customer, a portion of the consideration received from the customer is ascribed to them based upon their relative stand-alone selling price. These types of incentives are accounted for on a portfolio basis with both revenue and expense recognized in the month they are awarded to the customer. The earned revenue associated with these incentives is reflected in “Other” revenue while the associated costs are reflected in “Cost of services”.
Upfront Fees
All non-refundable upfront fees assessed to our customers provide them with a material right to renew; therefore, they are deferred by creating a contract liability and amortized into “Data and Internet service” for fees charged to our wholesale customers and “Other revenue” for fees charged to all other customers, using a portfolio approach over the average customer life.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Customer Acquisition Costs
Sales commission expenses are recognized as incurred. According to ASC 606, incremental costs in obtaining a contract with a customer are deferred and recorded as a contract asset if the period of benefit is expected to be greater than one year. For our retail customers, this period of benefit has been determined to be less than one year. As such, the Company applies the practical expedient that allows such costs to be expensed as incurred.
Taxes, Surcharges and Subsidies
Frontier collects various taxes, Universal Service Fund (“USF”) surcharges (primarily federal USF), and certain other surcharges, from its customers and subsequently remits these taxes to governmental authorities. During the predecessor period, USF and other surcharges amounted to $ i 83 million for the four months ended April 30, 2021.
In June 2015, Frontier accepted the FCC offer of support to price cap carriers under the Connect America Fund (“CAF”) Phase II program, which was intended to provide long-term support for broadband build commitments in high cost unserved or underserved areas. We recognized FCC’s CAF Phase II subsidies into revenue on a straight-line basis over the seven-year funding term which ended on December 31, 2021. We have accrued an amount for any potential shortfall in the household build commitment 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.
In May 2022, Frontier accepted the FCC offer under the Rural Digital Opportunity Fund (“RDOF”) Phase I program, which provides funding over a ten-year period to support the construction of broadband networks in rural communities across the country. Frontier accepted $ i 37 million in annual support through 2032 in return for the Company’s commitment to make broadband available to households within the RDOF eligible areas. We will recognize the FCC’s RDOF Phase I subsidies into revenue on a straight-line basis over the ten-year funding term which will end March 31, 2032. The Company is required to complete the RDOF deployment by December 31, 2028. Thereafter, the FCC will review carriers’ RDOF program completion data, and if the FCC determines that the Company did not satisfy applicable FCC RDOF requirements, Frontier could be required to return a portion of the funds previously received and may be subject to certain other requirements and obligations. We will accrue an amount for any potential shortfall in the household build commitment that we deem to be probable and reasonably estimated.
d) i Cash Equivalents:
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash of $ i 17 million is included in “Other current assets” as of December 31, 2021, and $ i 30 million and $ i 34 million are included in “Other assets” on our consolidated balance sheet as of June 30, 2022 and December 31, 2021, respectively.
e) i Short-Term Investments:
Given the long-term nature of our fiber build, we have invested cash into short-term investments to improve interest income while preserving funding flexibility. We have classified these short-term deposits and other investments that have original maturities of greater than three months but less than one year as short-term investments.
As of June 30, 2022, short-term investments of $ i 2,300 million are comprised of term deposits earning interest in excess of traditional bank deposit rates, maturing between July 15, 2022, and November 15, 2022, and placed with banks with A-1/P-1 or equivalent credit quality. These short-term investments are in scope of ASC 320, Investments - Debt Securities. The short-term investments’ original maturity is greater than 90 days but less than one year, and they are classified as held to maturity, recorded as current assets, and are accounted for at amortized cost.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
f) i Definite and Indefinite Lived Intangible Assets:
Intangible assets are initially recorded at estimated fair value. Old Frontier historically amortized its acquired customer lists and certain other finite-lived intangible assets over their estimated useful lives on an accelerated basis. Upon emergence from bankruptcy, customer relationship intangibles were established for business and wholesale customers. These intangibles are amortized on a straight-line basis over their assigned useful lives of between i 11 and i 16 years. Additionally, trademark and tradename assets established upon emergence are amortized on a straight-line basis over i 5 years. We review such intangible assets annually, or more often if indicators of impairment arise, to determine whether there is evidence that indicates an impairment condition may exist that would necessitate a change in useful life and a different amortization period.
g) i Lease Accounting:
We determine if an arrangement contains a lease at inception. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating and Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating and finance lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms used in accounting for leases may reflect options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term. ROU assets for operating leases are recorded to “Other Assets”, and the related liabilities recorded to “Other current liabilities”, and “Other liabilities” on our consolidated balance sheets. Assets subject to finance leases are included in “Property, Plant & Equipment”, with corresponding liabilities recorded to “Other current liabilities”, and “Other liabilities” on our consolidated balance sheets.
We assess potential impairments to our leases annually, or as indicators exist, if indicators of impairment arise to determine whether there is evidence that indicate an impairment condition may exist. We continue to review our real estate portfolio and, during the first quarter of 2022, determined to either terminate or market for sublease certain facilities leases, which triggered an impairment of $ i 44 million for our finance and operating lease assets recorded as restructuring charges and other costs. See Note 9 for further details.
i (2) Recent Accounting Literature:
i Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting". This standard provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. The standard applies to contracts and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. Frontier is evaluating the impact of the adoption of this standard, including optional expedients, on our consolidated financial statements.
Government Assistance
In November 2021, the FASB issued ASU 2021-10, which requires business entities to disclose information about certain government assistance they receive. Such disclosure requirements include the nature of the transactions and the related accounting policy used, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item and significant
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
terms and conditions of the transactions. ASU 2021-10 will be effective for annual periods beginning after December 15, 2021 (year ending December 31, 2022 for the Company). Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2021-10 will have on its disclosures.
i (3) Revenue Recognition:
We categorize our products, services and other revenues into the following categories:
Data and Internet services include broadband services for consumer and business customers. We provide data transmission services to high volume business customers and other carriers with dedicated high capacity circuits (“nonswitched access”) including services to wireless providers (wireless backhaul);
Voice services include traditional local and long-distance wireline services, Voice over Internet Protocol (VoIP) services, as well as a number of unified messaging services offered to our consumer and business customers. Voice services also include the long-distance voice origination and termination services that we provide to our business customers and other carriers;
Video services include revenues generated from services provided directly to consumer customers as linear terrestrial television services, through DISH® satellite TV service, and through partnerships with over-the-top (OTT) video providers. Video services also includes pay per view revenues, video on demand, equipment rentals, and video advertising. The Company has made the strategic decision to limit sales of new traditional TV services, focusing on our broadband products and OTT video options;
Other customer revenue includes switched access revenue, rents collected for colocation services, and revenue from other services and fees. Switched access revenue includes revenues derived from allowing other carriers to use our network to originate and/or terminate their local and long-distance voice traffic. These services are primarily billed on a minutes-of-use basis applying tariffed rates filed with the FCC or state agencies; and
Subsidy and other regulatory revenue include revenues generated from cost subsidies from state and federal authorities, including CAF II and RDOF.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
The following tables provide a summary of revenues, by category:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
| |||
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Data and Internet services |
| $ | i 847 |
| $ | i 556 |
|
| $ | i 283 |
|
| Voice services |
|
| i 381 |
|
| i 283 |
|
|
| i 160 |
|
| Video services |
|
| i 134 |
|
| i 105 |
|
|
| i 54 |
|
| Other |
|
| i 80 |
|
| i 62 |
|
|
| i 30 |
|
| Revenue from contracts with customers (1) |
|
| i 1,442 |
|
| i 1,006 |
|
|
| i 527 |
|
| Subsidy and other revenue (2) |
|
| i 17 |
|
| i 55 |
|
|
| i 28 |
|
| Total revenue |
| $ | i 1,459 |
| $ | i 1,061 |
|
| $ | i 555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
| |||
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
| $ | i 791 |
| $ | i 543 |
|
| $ | i 283 |
|
| Business and wholesale |
|
| i 651 |
|
| i 463 |
|
|
| i 244 |
|
| Revenue from contracts with customers (1) |
|
| i 1,442 |
|
| i 1,006 |
|
|
| i 527 |
|
| Subsidy and other revenue (2) |
|
| i 17 |
|
| i 55 |
|
|
| i 28 |
|
| Total revenue |
| $ | i 1,459 |
| $ | i 1,061 |
|
| $ | i 555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Data and Internet services |
| $ | i 1,683 |
| $ | i 556 |
|
| $ | i 1,125 |
|
| Voice services |
|
| i 767 |
|
| i 283 |
|
|
| i 647 |
|
| Video services |
|
| i 271 |
|
| i 105 |
|
|
| i 223 |
|
| Other |
|
| i 163 |
|
| i 62 |
|
|
| i 125 |
|
| Revenue from contracts with customers (1) |
|
| i 2,884 |
|
| i 1,006 |
|
|
| i 2,120 |
|
| Subsidy and other revenue (2) |
|
| i 22 |
|
| i 55 |
|
|
| i 111 |
|
| Total revenue |
| $ | i 2,906 |
| $ | i 1,061 |
|
| $ | i 2,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
| $ | i 1,567 |
| $ | i 543 |
|
| $ | i 1,133 |
|
| Business and wholesale |
|
| i 1,317 |
|
| i 463 |
|
|
| i 987 |
|
| Revenue from contracts with customers (1) |
|
| i 2,884 |
|
| i 1,006 |
|
|
| i 2,120 |
|
| Subsidy and other revenue (2) |
|
| i 22 |
|
| i 55 |
|
|
| i 111 |
|
| Total revenue |
| $ | i 2,906 |
| $ | i 1,061 |
|
| $ | i 2,231 |
|
(1)Lease revenue included in “Revenue from contracts with customers” was $ i 16 million and $ i 32 million for the three and six months ended June 30, 2022, respectively, $ i 11 million for the two months ended June 30, 2021, and $ i 5 million and $ i 26 million for the one and four months ended April 30, 2021, respectively.
(2)Subsidy and other revenue for the three and six months ended June 30, 2022, does not include revenue from CAF II as the program ended in 2021. We began to receive funding for RDOF in the second quarter of 2022.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
The following is a summary of the changes in the contract assets and contract liabilities:
i
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|
| Contract Assets |
| Contract Liabilities |
| ||||||||
| ($ in millions) |
| Current |
| Noncurrent |
| Current |
| Noncurrent |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2021 (Successor) |
| $ | - |
| $ | - |
| $ | i 27 |
| $ | i 11 |
|
| Revenue recognized included |
|
|
|
|
|
|
|
|
|
|
|
|
|
| in opening contract balance |
|
| - |
|
| - |
|
| ( i 20) |
|
| ( i 5) |
|
| Credits granted, excluding amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| recognized as revenue |
|
| - |
|
| - |
|
| i 18 |
|
| i 11 |
|
| Reclassified between current |
|
|
|
|
|
|
|
|
|
|
|
|
|
| and noncurrent |
|
| - |
|
| - |
|
| i 2 |
|
| ( i 2) |
|
| Balance at June 30, 2022 (Successor) |
| $ | - |
| $ | - |
| $ | i 27 |
| $ | i 15 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
| Contract Assets |
| Contract Liabilities |
| ||||||||
| ($ in millions) |
| Current |
| Noncurrent |
| Current |
| Noncurrent |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2020 (Predecessor) |
| $ | i 6 |
| $ | i 9 |
| $ | i 58 |
| $ | i 20 |
|
| Revenue recognized included |
|
|
|
|
|
|
|
|
|
|
|
|
|
| in opening contract balance |
|
| ( i 4) |
|
| - |
|
| ( i 23) |
|
| ( i 3) |
|
| Cash received, excluding amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| recognized as revenue |
|
| - |
|
| - |
|
| i 22 |
|
| i 2 |
|
| Balance at April 30, 2021 (Predecessor) |
| $ | i 2 |
| $ | i 9 |
| $ | i 57 |
| $ | i 19 |
|
| Fresh start accounting adjustments |
|
| ( i 2) |
|
| ( i 9) |
|
| ( i 42) |
|
| ( i 18) |
|
| Balance at April 30, 2021 (Predecessor) |
| $ | - |
| $ | - |
| $ | i 15 |
| $ | i 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at April 30, 2021 (Successor) |
| $ | - |
| $ | - |
| $ | i 15 |
| $ | i 1 |
|
| Revenue recognized included |
|
|
|
|
|
|
|
|
|
|
|
|
|
| in opening contract balance |
|
| - |
|
| - |
|
| ( i 4) |
|
| ( i 1) |
|
| Cash received, excluding amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| recognized as revenue |
|
| - |
|
| - |
|
| i 8 |
|
| i 4 |
|
| Reclassified between current |
|
|
|
|
|
|
|
|
|
|
|
|
|
| and noncurrent |
|
| - |
|
| - |
|
| ( i 1) |
|
| i 1 |
|
| Balance at June 30, 2021 (Successor) |
| $ | - |
| $ | - |
| $ | i 18 |
| $ | i 5 |
|
The unsatisfied obligations for retail customers consist of amounts in advance billings, which are expected to be earned within the following monthly billing cycle. Unsatisfied obligations for wholesale customers are based on a point-in-time calculation and determined by the number of circuits provided and the contractual price. These wholesale customer obligations change from period to period based on new circuits added as well as circuits that are terminated.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period:
i
|
|
|
|
|
|
| ($ in millions) |
| Revenue from contracts with customers |
| |
| 2022 (remaining six months) |
| $ | i 461 |
|
| 2023 |
|
| i 407 |
|
| 2024 |
|
| i 270 |
|
| 2025 |
|
| i 135 |
|
| 2026 |
|
| i 83 |
|
| Thereafter |
|
| i 91 |
|
| Total |
| $ | i 1,447 |
|
|
|
|
|
|
|
The components of accounts receivable, net are as follows:
i
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| ($ in millions) |
|
|
| ||||
| Retail and wholesale |
| $ | i 406 |
| $ | i 441 |
|
| Other |
|
| i 59 |
|
| i 74 |
|
| Less: Allowance for doubtful accounts |
|
| ( i 45) |
|
| ( i 57) |
|
| Accounts receivable, net |
| $ | i 420 |
| $ | i 458 |
|
|
|
|
|
|
|
|
|
|
We maintain an allowance for credit losses based on the estimated ability to collect accounts receivable. The allowance for credit losses is increased by recording an expense for the provision for bad debts for retail customers, and through decreases to revenue at the time of billing for wholesale customers. The allowance is decreased when customer accounts are written off, or when customers are given credits.
The provision for bad debts was $ i 14 million for the six months ended June 30, 2022, $ i 6 million for the two months ended June 30, 2021, and $ i 4 million and $ i 14 million for the one and four months ended April 30, 2021, respectively.
In accordance with ASC 326, Frontier performs its calculation to estimate expected credit losses, utilizing rates that are consistent with the Company’s write offs (net of recoveries) because such events affect the entity’s loss given default experience.
Activity in the allowance for credit losses for the six months ended June 30, 2022 was as follows:
i
|
|
|
|
|
| ($ in millions) |
|
| |
| Balance at December 31, 2021 | $ | i 57 |
|
| Provision for bad debt |
| i 14 |
|
| Amounts charged to revenue |
| i 17 |
|
| Write offs charged against the allowance |
| ( i 43) |
|
| Balance at June 30, 2022 | $ | i 45 |
|
|
|
|
| |
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
i (5) Property, Plant and Equipment:
Property, plant and equipment, net is as follows:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| ($ in millions) |
|
|
| ||||
| Property, plant and equipment |
| $ | i 11,024 |
| $ | i 9,707 |
|
| Less: Accumulated depreciation |
|
| ( i 916) |
|
| ( i 508) |
|
| Property, plant and equipment, net |
| $ | i 10,108 |
| $ | i 9,199 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense is principally based on the composite group method. Depreciation expense was as follows:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
| |||
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation expense |
| $ | i 211 |
| $ | i 127 |
|
| $ | i 99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation expense |
| $ | i 414 |
| $ | i 127 |
|
| $ | i 407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of applying fresh start accounting on the Effective Date, Frontier’s fixed assets were reduced from $ i 13.0 billion to $ i 8.5 billion. For the six months ended June 30, 2022, the decrease in depreciation expense was principally a result of the reduced asset base following this fresh start fair value adjustment. In July 2022, we sold a property that was subject to leaseback, generating approximately $ i 70 million in proceeds.
During the six months ended June 30, 2022, our capital expenditures were $ i 1,088 million. In addition, we had $ i 250 million of capital expenditures that were received but not paid as of June 30, 2022.
i The components of other intangibles as of June 30, 2022 and December 31, 2021 was follows:
|
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|
|
|
|
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
|
|
| Gross Carrying |
| Accumulated |
| Net Carrying |
| Gross Carrying |
| Accumulated |
| Net Carrying |
| ||||||
| ($ in millions) |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Customer Relationships - Business |
| $ | i 800 |
| $ | ( i 85) |
| $ | i 715 |
| $ | i 800 |
| $ | ( i 48) |
| $ | i 752 |
|
| Customer Relationships - Wholesale |
|
| i 3,491 |
|
| ( i 254) |
|
| i 3,237 |
|
| i 3,491 |
|
| ( i 146) |
|
| i 3,345 |
|
| Trademarks & Tradenames |
|
| i 150 |
|
| ( i 35) |
|
| i 115 |
|
| i 150 |
|
| ( i 20) |
|
| i 130 |
|
| Total other intangibles |
| $ | i 4,441 |
| $ | ( i 374) |
| $ | i 4,067 |
| $ | i 4,441 |
| $ | ( i 214) |
| $ | i 4,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Amortization expense was as follows:
i
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|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
| |||
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization expense |
| $ | i 79 |
| $ | i 52 |
|
| $ | i 20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
| ($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization expense |
| $ | i 160 |
| $ | i 52 |
|
| $ | i 99 |
|
|
|
|
|
|
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| ||
Following our emergence from bankruptcy, we amortize our intangible assets on a straight-line basis, over the assigned useful lives of i 16 years for our wholesale customer relationships, i 11 years for our business customer relationships, and i 5 years for our trademarks and tradenames.
For the Predecessor, amortization expense was primarily for our customer base acquired as a result of our acquisitions in 2010, 2014, and 2016 with each based on a useful life of i 8 to i 12 years and amortized on an accelerated method. Our trade name was an indefinite-lived intangible asset that was not subject to amortization.
i (7) Fair Value of Financial Instruments:
The following table summarizes the carrying amounts and estimated fair values for total long-term debt at June 30, 2022 and December 31, 2021. For the other financial instruments including cash, short-term investments, 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 total long-term debt is estimated based upon quoted market prices at the reporting date for those financial instruments.
i
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($ in millions) |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
|
|
|
|
|
|
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|
|
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Total debt |
| $ | i 8,970 |
| $ | i 7,995 |
| $ | i 7,777 |
| $ | i 7,996 |
(
i
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
(8) Long-Term Debt:
Chapter 11 Restructuring
The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all then-outstanding obligations under Old Frontier’s debt agreements and notes as follows:
·the amended and restated credit agreement, dated as of February 27, 2017 (as amended, the JPM Credit Agreement),
·the i 8.000% first lien secured notes due i April 1, 2027 (the Original First Lien Notes),
·the i 8.500% second lien secured notes due i April 1, 2026 (the Original Second Lien Notes),
·the unsecured notes and debentures and the secured and unsecured debentures of the Company’s subsidiaries.
As of the Effective Date, amounts that were outstanding under the JPM Credit Agreement, the Original First Lien Notes, and the Original Second Lien Notes were repaid in full.
On the Effective Date, pursuant to the terms of the Plan, all of the obligations under Old Frontier’s unsecured senior note indentures were cancelled, and in connection with emergence, Frontier issued i 244,401,000 shares of common stock that were transferred to holders of the allowed senior notes claims (as defined under the Plan).
Interest expense for the one and four months ended April 30, 2021 recorded on our Predecessor statements of income was lower than contractual interest of $ i 112 million and $ i 450 million, respectively, because we ceased accruing interest on the Petition Date in accordance with the terms of the Plan and ASC Topic 852.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
The activity in our long-term debt is summarized as follows:
i
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| For the six months ended |
|
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| ||||||
|
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|
|
| Principal |
|
|
|
|
|
|
| |
|
|
| January 1, |
| Payments |
| New |
| June 30, |
| ||||
| ($ in millions) |
| 2022 |
| and Retirements |
| Borrowings |
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Secured debt issued by Frontier |
| $ | i 6,927 |
| $ | ( i 7) |
| $ | i 1,200 |
| $ | i 8,120 |
|
| Secured debt issued by subsidiaries |
|
| i 100 |
|
| - |
|
| - |
|
| i 100 |
|
| Unsecured debt issued by subsidiaries |
|
| i 750 |
|
| - |
|
| - |
|
| i 750 |
|
| Principal outstanding |
| $ | i 7,777 |
| $ | ( i 7) |
| $ | i 1,200 |
| $ | i 8,970 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: Debt Issuance Costs |
|
| ( i 13) |
|
|
|
|
|
|
|
| ( i 30) |
|
| Less: Current Portion |
|
| ( i 15) |
|
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|
|
|
|
|
| ( i 15) |
|
| Plus: Unamortized fair value adjustments (1) |
|
| i 219 |
|
|
|
|
|
|
|
| i 205 |
|
| Total Long-term debt |
| $ | i 7,968 |
|
|
|
|
|
|
| $ | i 9,130 |
|
|
|
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|
(1) Upon emergence, we adjusted the carrying value of our debt to fair value. The adjustment consisted of the elimination of the existing unamortized debt issuance costs and unamortized discounts and recording a balance of $ i 236 million as a fair value adjustment. The fair value accounting adjustment is being amortized into interest expense using the effective interest method.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Additional information regarding our secured and unsecured total long-term debt as of June 30, 2022 and December 31, 2021 is as follows:
i
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| ||||||||
|
|
| Principal |
| Interest |
|
| Principal |
| Interest |
| ||
| ($ in millions) |
| Outstanding |
| Rate |
|
| Outstanding |
| Rate |
| ||
|
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|
|
|
|
|
| Secured debt issued by Frontier |
|
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|
|
|
|
|
|
|
|
|
|
| Term loan due 10/8/2027 |
| $ | i 1,457 |
| 4.813% (Variable) |
|
| $ | i 1,464 |
| 4.500% (Variable) |
|
| First lien notes due 10/15/2027 |
|
| i 1,150 |
| i 5.875% |
|
|
| i 1,150 |
| i 5.875% |
|
| First lien notes due 5/1/2028 |
|
| i 1,550 |
| i 5.000% |
|
|
| i 1,550 |
| i 5.000% |
|
| First lien notes due 5/12/2030 |
|
| i 1,200 |
| i 8.750% |
|
|
| - |
| n/a |
|
| Second lien notes due 11/1/2029 |
|
| i 750 |
| i 5.875% |
|
|
| i 750 |
| i 5.875% |
|
| Second lien notes due 5/1/2029 |
|
| i 1,000 |
| i 6.750% |
|
|
| i 1,000 |
| i 6.750% |
|
| Second lien notes due 1/15/2030 |
|
| i 1,000 |
| i 6.000% |
|
|
| i 1,000 |
| i 6.000% |
|
| IDRB due 5/1/2030 |
|
| i 13 |
| i 6.200% |
|
|
| i 13 |
| i 6.200% |
|
| Secured debt issued by Frontier |
|
| i 8,120 |
|
|
|
|
| i 6,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Secured debt issued by subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
| Debentures due 11/15/2031 |
|
| i 100 |
| i 8.500% |
|
|
| i 100 |
| i 8.500% |
|
| Secured debt issued by subsidiaries |
|
| i 100 |
|
|
|
|
| i 100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unsecured debt issued by subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
| Debentures due 5/15/2027 |
|
| i 200 |
| i 6.750% |
|
|
| i 200 |
| i 6.750% |
|
| Debentures due 2/1/2028 |
|
| i 300 |
| i 6.860% |
|
|
| i 300 |
| i 6.860% |
|
| Debentures due 2/15/2028 |
|
| i 200 |
| i 6.730% |
|
|
| i 200 |
| i 6.730% |
|
| Debentures due 10/15/2029 |
|
| i 50 |
| i 8.400% |
|
|
| i 50 |
| i 8.400% |
|
| Unsecured debt issued by subsidiaries |
|
| i 750 |
|
|
|
|
| i 750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Principal outstanding |
| $ | i 8,970 |
| i 6.163% (1) |
|
| $ | i 7,777 |
| i 5.702% (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest rate represents a weighted average of the stated interest rates of multiple issuances.
/
Credit Facilities and Term Loans
Summaries of our various credit and debt agreements, including our credit agreements and the indentures for our senior secured first lien notes and senior secured second lien notes, are contained in our Annual Report on Form 10-K. The summaries below and in our Form 10-K do not purport to be complete and are qualified in their entirety by reference to each agreement filed as an Exhibit to our Annual Report on Form 10-K.
Revolving Facility
On May 12, 2022, Frontier entered into an amendment (“Amendment No. 2”) to its Revolving Facility. The Amendment, among other things, increased the Revolving Facility by an additional $ i 275 million, to a total of $ i 900 million in aggregate principal amount of revolving credit commitments, and provided that the Revolving Facility be amended to reflect Secured Overnight Financing Rate “SOFR” based interest rates (including a customary spread adjustment).
The $ i 900 million Revolving Facility will be available on a revolving basis until i April 30, 2025.
At Frontier’s election, the determination of interest rates for the Revolving Facility is based on margins over the alternate base rate or over SOFR. The interest rate margin with respect to any SOFR loan under the Exit Revolving Facility is i 3.50% or i 2.50% with respect to any alternate base rate loans, with a i 0% SOFR floor.
Subject to customary exceptions and thresholds, the security package under the Revolving Facility includes pledges of the equity interests in certain of our subsidiaries, which as of the issue date is limited to certain specified pledged entities and substantially all personal property of Frontier Video, which same assets also secure the First Lien Notes. The Revolving Facility is guaranteed by the same subsidiaries that guarantee the
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
First Lien Notes. After giving effect to $ i 133 million of letters of credit outstanding as of June 30, 2022, the Borrower has $ i 767 million of available borrowing capacity under the Revolving Facility.
i (9) Restructuring Costs and Other Charges:
Restructuring and other charges consists of severance and employee costs related to workforce reductions. It also includes professional fees related to our Chapter 11 Cases that were incurred after the emergence date as well as professional fees related to our restructuring and transformation that were incurred prior to the Petition Date.
During the six month period ended June 30, 2022, we incurred $ i 84 million in restructuring charges and other costs consisting of $ i 44 million of lease impairment costs from the strategic exit of certain facilities, $ i 32 million of severance and employee costs resulting from workforce reductions, and $ i 8 million of costs related to other restructuring activities. Of the $ i 32 million in severance and employee costs, approximately $ i 26 million related to the second quarter of 2022, as a result of larger workforce reductions.
As part of the Company's cost reduction strategy, certain real estate leases will not be retained, or will be marketed for sublease. The Company evaluated the related right-of-use assets and other lease related assets for impairment under ASC 360. In connection with this analysis, the Company reassessed its leased real estate asset groups and estimated the fair value of the office space to be subleased under current market conditions. Where the carrying values of individual asset groups exceeded their fair values, an impairment charge was recognized for the difference.
During the four months ended April 30, 2021, we incurred $ i 7 million of severance and employee costs resulting from workforce reductions. During the two months ended June 30, 2021, we incurred $ i 11 million in expenses consisting of $ i 2 million of severance and employee costs resulting from workforce reductions and $ i 9 million of professional fees related to our balance sheet restructuring.
The following is a summary of the changes in the liabilities established for restructuring and other related programs:
i
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|
|
|
|
|
|
| ($ in millions) |
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2022 |
| $ | i 7 |
|
| Severance expense |
|
| i 32 |
|
| Other costs |
|
| i 8 |
|
| Cash payments during the period |
|
| ( i 28) |
|
| Balance at June 30, 2022 |
| $ | i 19 |
|
i
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
(10) Investment and Other Income:
The following is a summary of the components of Investment and Other Income:
i
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|
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|
|
|
|
|
|
|
|
|
| Successor |
|
| Successor |
|
| Predecessor |
| |||
|
|
| For the three months ended June 30, |
|
| For the two months ended June 30, |
|
| For the one month ended April 30, |
| |||
| ($ in millions) |
| 2022 |
|
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and dividend income |
| $ | i 6 |
|
| $ | - |
|
| $ | - |
|
| Pension benefit |
|
| i 25 |
|
|
| i 13 |
|
|
| i 2 |
|
| OPEB costs |
|
| ( i 5) |
|
|
| ( i 17) |
|
|
| ( i 1) |
|
| OPEB remeasurement gain |
|
| i 96 |
|
|
| - |
|
|
| - |
|
| All other, net |
|
| - |
|
|
| i 2 |
|
|
| ( i 2) |
|
| Total investment and other income (loss), net |
| $ | i 122 |
|
| $ | ( i 2) |
|
| $ | ( i 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
|
| Successor |
|
| Predecessor |
| |||
|
|
| For the six months ended June 30, |
|
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
| ($ in millions) |
| 2022 |
|
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and dividend income |
| $ | i 8 |
|
| $ | - |
|
| $ | - |
|
| Pension benefit |
|
| i 50 |
|
|
| i 13 |
|
|
| i 6 |
|
| OPEB costs |
|
| ( i 8) |
|
|
| ( i 17) |
|
|
| ( i 4) |
|
| OPEB remeasurement gain |
|
| i 150 |
|
|
| - |
|
|
| - |
|
| All other, net |
|
| ( i 1) |
|
|
| i 2 |
|
|
| ( i 1) |
|
| Total investment and other income (loss), net |
| $ | i 199 |
|
| $ | ( i 2) |
|
| $ | i 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first half of 2022, Frontier amended the medical coverage for certain postretirement benefit plans, primarily due to discount rate changes, which resulted in remeasurement gains of $ i 150 million. Refer to Note 15 for further details.
Pension and OPEB benefit (costs) consist of interest income (loss), expected return on plan assets, amortization of prior service costs (credit) and recognition of actuarial gain (loss).
i
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
(11) Stock Plans:
Upon emergence, all outstanding stock-based compensation plans of Old Frontier were terminated and, in accordance with the Plan, the form of Frontier Communications Parent, Inc. 2021 Management Incentive Plan (the “2021 Incentive Plan”) was approved and adopted by the Board. The Incentive Plan permits stock-based awards to be made to employees, directors, or consultants of the Company or its affiliates, as determined by the Compensation and Human Capital Committee of the Board. Under the 2021 Incentive Plan, i 15,600,000 shares of common stock have been reserved for issuance. As of June 30, 2022, unvested awards relating to approximately i 2,327,000 shares were outstanding under the long-term equity award program or “Emergence LTI Program”.
Restricted Stock
The following summary presents information regarding unvested restricted stock under the 2021 Incentive Plan:
i
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|
|
|
|
|
|
|
|
|
|
| 2021 Incentive Plan |
| ||||||||
|
|
|
|
| Weighted |
|
|
|
| |
|
|
|
|
| Average |
|
|
| ||
|
|
| Number of |
| Grant Date |
| Aggregate |
| ||
|
|
| Shares |
| Fair Value |
| Fair Value |
| ||
|
|
| (in thousands) |
| (per share) |
| (in millions) |
| ||
| Balance at January 1, 2022 |
| i 2,483 |
| $ | i 28.67 |
| $ | i 72 |
|
| Restricted stock granted |
| i 941 |
| $ | i 25.87 |
| $ | i 25 |
|
| Restricted stock vested |
| ( i 817) |
| $ | i 25.69 |
| $ | ( i 22) |
|
| Restricted stock forfeited |
| ( i 92) |
| $ | i 25.91 |
|
|
|
|
| Balance at June 30, 2022 |
| i 2,515 |
| $ | i 25.84 |
| $ | i 67 |
|
|
|
|
|
|
|
|
|
|
|
|
For purposes of determining compensation expense, the fair value of each restricted stock grant is estimated based on the closing price of our common stock on the date of grant. The non-vested restricted stock units granted in 2021 generally vest, and are expensed, on a ratable basis over i three years from the grant date of the award. Total remaining unrecognized compensation cost associated with unvested restricted stock awards that is deferred at June 30, 2022 was $ i 62 million and the weighted average vesting period over which this cost is expected to be recognized is approximately i 2 years.
None of the restricted stock awards may be sold, assigned, pledged, or otherwise transferred, voluntarily or involuntarily, by the employees until the restrictions lapse, subject to limited exceptions. The restrictions are time-based. Compensation expense, including compensation related to non-employee directors, recognized in “Selling, general and administrative expenses”, of $ i 19 million for the six month-period ended June 30, 2022, has been recorded in connection with restricted stock.
Under the 2021 Incentive Plan, a target number of performance units are awarded to each participant with respect to the three-year performance period (a “Measurement Period”). The performance metrics under the 2021 and 2022 PSU grants consist of targets for (1) Adjusted Fiber EBITDA, (2) Fiber Locations Constructed and (3) Expansion Fiber Penetration. In addition, there is an overall relative total shareholder return (“TSR”) modifier, which is based on Frontier’s total return to stockholders over the Measurement Period relative to the S&P 400 Mid Cap Index. Each performance metric is weighted i 33.3%, and targets for each metric are set for each of the i three years during the Measurement Period. Achievement of the metrics will be measured separately, and the number of awards earned will be determined based on actual performance relative to the targets of each performance metric, plus the effect of the TSR modifier. Achievement is measured on a cumulative basis for each performance metric individually at the end of the three-year Measurement Period. The payout of the 2021 PSUs can range from i 0% to a maximum award payout of i 300% of the target units. The payout of the 2022 PSUs
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
can range from i 0% to a maximum award payout of i 200% of the target units. PSUs awards, to the extent earned, will be paid out in the form of common stock shortly following the end of the Measurement Period.
The number of shares of common stock or units earned at the end of the Measurement Period may be more or less than the number of target performance shares or units granted as a result of performance. An executive must maintain a satisfactory performance rating during the Measurement Period and must be employed by Frontier upon determination in order for the award to vest. The Compensation and Human Capital Committee will determine the number of shares earned for the Measurement Period in the first quarter of the year following the end of the Measurement Period.
Under ASC 718, Stock Based Compensation Expense, we establish a grant date and determine the fair value once the targets are finalized. All targets for the 2021 awards have been set and the fair value of the grants will be amortized over the vesting period. For the 2022 PSU awards, the targets related to two of the three performance metrics have not been established. As a result, as of June 30, 2022, we have recognized associated expense with respect to 1/3 of the aggregate outstanding 2022 PSU awards.
The following summary presents information regarding performance shares as of June 30, 2022 and changes during the six months then ended with regard to performance shares awarded under the 2021 Incentive Plan:
i
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|
|
|
|
|
|
|
|
|
| 2021 Incentive Plan |
| |||||||
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
| Number of |
|
| Grant Date |
| Aggregate |
| |
|
| Shares |
|
| Fair Value |
| Fair Value |
| |
|
| (in thousands) |
|
| (per share) |
| (in millions) |
| |
| Balance at January 1, 2022 | i 3,144 |
| $ | i 25.62 |
| $ | i 92 |
|
| Target performance shares awarded, net | i 257 |
| $ | i 25.85 |
| $ | i 7 |
|
| Target performance shares earned | - |
| $ | - |
| $ | - |
|
| Target performance shares forfeited | ( i 9) |
| $ | i 25.61 |
|
|
|
|
| Balance at June 30, 2022 | i 3,392 |
| $ | i 25.64 |
| $ | i 90 |
|
|
|
|
|
|
|
|
|
|
|
For purposes of determining compensation expense, the fair value of each performance share grant is estimated based on the closing price of a share of our common stock on the date of the grant, adjusted to reflect the fair value of the relative TSR modifier. For the six months ended June 30, 2022, we recognized net compensation expense, reflected in “Selling, general and administrative expenses,” of $ i 16 million related PSU awards.
i
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
(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:
i
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| Successor |
| Successor |
|
| Predecessor |
| ||||||
|
|
| For the three months ended June 30, |
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| ||||
|
|
| 2022 |
| 2022 |
| 2021 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated tax provision at federal statutory rate |
| i 21.0 | % |
| i 21.0 | % |
| i 21.0 | % |
|
| i 21.0 | % |
|
| State income tax expense, net of federal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| income tax benefit |
| i 15.0 |
|
| i 12.0 |
|
| i 3.7 |
|
|
| i 0.5 |
|
|
| Changes in certain deferred tax balances |
| i 1.7 |
|
| i 1.1 |
|
| - |
|
|
| - |
|
|
| Restructuring cost |
| - |
|
| - |
|
| - |
|
|
| i 0.3 |
|
|
| Tax reserve adjustment |
| i 0.3 |
|
| i 0.4 |
|
| i 0.6 |
|
|
| - |
|
|
| Fresh start and reorganization adjustments |
| - |
|
| - |
|
| - |
|
|
| ( i 24.9) |
|
|
| Tax Credit |
| ( i 0.6) |
|
| ( i 0.8) |
|
| ( i 1.3) |
|
|
| - |
|
|
| Sec.162(m) - nondeductible Executive Compensation |
| i 2.4 |
|
| i 3.2 |
|
| - |
|
|
| - |
|
|
| All other, net |
| i 0.8 |
|
| i 0.5 |
|
| i 6.1 |
|
|
| - |
|
|
| Effective tax rate |
| i 40.6 | % |
| i 37.4 | % |
| i 30.1 | % |
|
| ( i 3.1) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frontier considered positive and negative evidence in regard to evaluating certain state deferred tax assets during the second quarter of 2022, including the development of recent years of pre-tax book losses. On the basis of this evaluation, a valuation allowance of $ i 41 million ($ i 32 million net of federal benefit) was recorded as of June 30, 2022.
The effective rate for the three and six months ended June 30, 2022, increased as a result of increases to the state rate due to valuation allowances in certain states, arising from non-deductible interest expense primarily related to our $ i i 1.2 / billion first lien note issuance.
The effective rate changes between the three and six months ended June 30, 2022, as compared to 2021 are primarily due to, as described more fully in Note 1, the Company emergence from bankruptcy on April 30, 2021, and consummation of a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company and utilized substantially all of the Company’s Net Operating Losses (“NOLs”).
i
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
(13) Net Earnings Per Share:
The reconciliation of the net earnings per share calculation is as follows:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
| |||
| ($ in millions and shares in thousands, except per share amounts) | 2022 |
| 2021 |
|
| 2021 |
| |||
| Net income used for basic and diluted earnings |
|
|
|
|
|
|
|
|
|
|
| per share: |
|
|
|
|
|
|
|
|
|
|
| Total basic net income |
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders | $ | i 101 |
| $ | i 99 |
|
| $ | i 4,481 |
|
| Effect of loss related to dilutive stock units |
| - |
|
| - |
|
|
| - |
|
| Total diluted net income |
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders | $ | i 101 |
| $ | i 99 |
|
| $ | i 4,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
| Total weighted average shares and unvested restricted stock |
|
|
|
|
|
|
|
|
|
|
| awards outstanding - basic |
| i 244,723 |
|
| i 244,401 |
|
|
| i 104,816 |
|
| Less: Weighted average unvested restricted stock awards |
| - |
|
| - |
|
|
| ( i 154) |
|
| Total weighted average shares outstanding - basic |
| i 244,723 |
|
| i 244,401 |
|
|
| i 104,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic net earnings per share |
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders | $ | i 0.41 |
| $ | i 0.41 |
|
| $ | i 42.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
| Total weighted average shares outstanding - basic |
| i 244,723 |
|
| i 244,401 |
|
|
| i 104,662 |
|
| Effect of dilutive stock units |
| - |
|
| - |
|
|
| i 340 |
|
| Effect of dilutive restricted stock awards |
| - |
|
| - |
|
|
| - |
|
| Total weighted average shares outstanding - diluted |
| i 244,723 |
|
| i 244,401 |
|
|
| i 105,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted net earnings per share |
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders | $ | i 0.41 |
| $ | i 0.41 |
|
| $ | i 42.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
| ($ in millions and shares in thousands, except per share amounts) | 2022 |
| 2021 |
|
| 2021 |
| |||
| Net income used for basic and diluted earnings |
|
|
|
|
|
|
|
|
|
|
| per share: |
|
|
|
|
|
|
|
|
|
|
| Total basic net income |
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders | $ | i 166 |
| $ | i 99 |
|
| $ | i 4,541 |
|
| Effect of loss related to dilutive stock units |
| - |
|
| - |
|
|
| - |
|
| Total diluted net income |
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders | $ | i 166 |
| $ | i 99 |
|
| $ | i 4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
| Total weighted average shares and unvested restricted stock |
|
|
|
|
|
|
|
|
|
|
| awards outstanding - basic |
| i 244,592 |
|
| i 244,401 |
|
|
| i 104,799 |
|
| Less: Weighted average unvested restricted stock awards |
| - |
|
| - |
|
|
| ( i 215) |
|
| Total weighted average shares outstanding - basic |
| i 244,592 |
|
| i 244,401 |
|
|
| i 104,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic net earnings per share |
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders | $ | i 0.68 |
| $ | i 0.41 |
|
| $ | i 43.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
| Total weighted average shares outstanding - basic |
| i 244,592 |
|
| i 244,401 |
|
|
| i 104,584 |
|
| Effect of dilutive stock units |
| - |
|
| - |
|
|
| i 340 |
|
| Effect of dilutive restricted stock awards |
| i 239 |
|
| - |
|
|
| - |
|
| Total weighted average shares outstanding - diluted |
| i 244,831 |
|
| i 244,401 |
|
|
| i 104,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted net earnings per share |
|
|
|
|
|
|
|
|
|
|
| attributable to Frontier common shareholders | $ | i 0.68 |
| $ | i 0.41 |
|
| $ | i 43.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
In calculating diluted net income per common share for the six months ended June 30, 2022, the effect of all performance stock units is excluded from the computation as their respective performance metrics have not been satisfied as of June 30, 2022.
Stock Units
At June 30, 2021, the dilutive common stock equivalents consisted of stock units 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.
i
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
(14) Comprehensive Income (Loss):
Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting 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, and changes are as follows:
i
|
|
|
|
|
|
|
|
|
|
|
|
| Pension |
| OPEB |
|
|
|
| ||
($ in millions) |
| Costs |
| Costs |
| Total |
| |||
Balance at January 1, 2022 (Successor) (1) |
| $ | - |
| $ | i 60 |
| $ | i 60 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
before reclassifications |
|
| - |
|
| i 6 |
|
| i 6 |
|
Amounts reclassified from accumulated other |
|
|
|
|
|
|
|
|
|
|
comprehensive income to net income |
|
| - |
|
| ( i 4) |
|
| ( i 4) |
|
Net current-period other comprehensive |
|
|
|
|
|
|
|
|
|
|
income |
|
| - |
|
| i 2 |
|
| i 2 |
|
Balance at June 30, 2022 (Successor) (1) |
| $ | - |
| $ | i 62 |
| $ | i 62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension |
| OPEB |
|
|
| |||
($ in millions) |
| Costs |
| Costs |
| Total |
| |||
Balance at January 1, 2021 (Predecessor) (1) |
| $ | ( i 699) |
| $ | ( i 56) |
| $ | ( i 755) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
before reclassifications |
|
| i 270 |
|
| i 74 |
|
| i 344 |
|
Amounts reclassified from accumulated other |
|
|
|
|
|
|
|
|
|
|
comprehensive loss to net income |
|
| i 19 |
|
| ( i 4) |
|
| i 15 |
|
Net current-period other comprehensive |
|
|
|
|
|
|
|
|
|
|
income |
|
| i 289 |
|
| i 70 |
|
| i 359 |
|
Cancellation of Predecessor equity |
|
| i 410 |
|
| ( i 14) |
|
| i 396 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2021 (Predecessor) (1) |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2021 (Successor) (1) |
| $ | - |
| $ | - |
| $ | - |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
before reclassifications |
|
| - |
|
| i 42 |
|
| i 42 |
|
Amounts reclassified from accumulated other |
|
|
|
|
|
|
|
|
|
|
comprehensive income to net income |
|
| - |
|
| ( i 1) |
|
| ( i 1) |
|
Net current-period other comprehensive |
|
|
|
|
|
|
|
|
|
|
income |
|
| - |
|
| i 41 |
|
| i 41 |
|
Balance at June 30, 2021 (Successor) (1) |
| $ | - |
| $ | i 41 |
| $ | i 41 |
|
/
(1) Pension and OPEB amounts are net of tax of $ i 15 million and $ i 234 million as of January 1, 2022 and 2021, respectively and $ i 17 million and $ i 14 million as of June 30, 2022 and 2021, respectively.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
The significant items reclassified from components of accumulated other comprehensive loss are as follows:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
|
| |||
|
| Amount Reclassified from |
|
| ||||||||
|
| Accumulated Other |
|
| ||||||||
|
| Comprehensive Loss (1) |
|
| ||||||||
($ in millions) |
|
|
|
|
|
|
|
|
|
|
| Affected Line Item in |
|
| For the three months |
| For the two months |
|
| For the one month |
| the Statement Where | |||
Details about Accumulated Other |
| ended June 30, |
| ended June 30, |
|
| ended April 30, |
| Net Income (Loss) | |||
Comprehensive Loss Components |
| 2022 |
| 2021 |
|
| 2021 |
| is Presented | |||
Amortization of Pension Cost Items |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses |
| $ | - |
| $ | - |
|
| $ | ( i 6) |
|
|
One-time loss on disposal |
|
| - |
|
| - |
|
|
| - |
|
|
|
|
| - |
|
| - |
|
|
| ( i 6) |
| Income (Loss) before income taxes |
Tax impact |
|
| - |
|
| - |
|
|
| i 1 |
| Income tax benefit |
|
| $ | - |
| $ | - |
|
| $ | ( i 5) |
| Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of OPEB Cost Items |
|
|
|
|
|
|
|
|
|
|
|
|
Prior-service costs |
| $ | i 3 |
| $ | i 1 |
|
| $ | i 3 |
|
|
Actuarial losses |
|
| - |
|
| - |
|
|
| ( i 2) |
|
|
|
|
| i 3 |
|
| i 1 |
|
|
| i 1 |
| Income (Loss) before income taxes |
Tax impact |
|
| ( i 1) |
|
| - |
|
|
| - |
| Income tax benefit |
|
| $ | i 2 |
| $ | i 1 |
|
| $ | i 1 |
| Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
|
| |||
|
| Amount Reclassified from |
|
| ||||||||
|
| Accumulated Other |
|
| ||||||||
|
| Comprehensive Loss (1) |
|
| ||||||||
($ in millions) |
|
|
|
|
|
|
|
|
|
|
| Affected Line Item in |
|
| For the six months |
| For the two months |
|
| For the four months |
| the Statement Where | |||
Details about Accumulated Other |
| ended June 30, |
| ended June 30, |
|
| ended April 30, |
| Net Income (Loss) | |||
Comprehensive Loss Components |
| 2022 |
| 2021 |
|
| 2021 |
| is Presented | |||
Amortization of Pension Cost Items |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses |
| $ | - |
| $ | - |
|
| $ | ( i 24) |
|
|
One-time loss on disposal |
|
| - |
|
| - |
|
|
| - |
|
|
|
|
| - |
|
| - |
|
|
| ( i 24) |
| Income (Loss) before income taxes |
Tax impact |
|
| - |
|
| - |
|
|
| i 5 |
| Income tax benefit |
|
| $ | - |
| $ | - |
|
| $ | ( i 19) |
| Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of OPEB Cost Items |
|
|
|
|
|
|
|
|
|
|
|
|
Prior-service costs |
| $ | i 6 |
| $ | i 1 |
|
| $ | i 10 |
|
|
Actuarial losses |
|
| - |
|
| - |
|
|
| ( i 5) |
|
|
|
|
| i 6 |
|
| i 1 |
|
|
| i 5 |
| Income (Loss) before income taxes |
Tax impact |
|
| ( i 2) |
|
| - |
|
|
| ( i 1) |
| Income tax benefit |
|
| $ | i 4 |
| $ | i 1 |
|
| $ | i 4 |
| Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension and OPEB costs (See Note 15 - Retirement Plans for additional details).
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Frontier recognizes actuarial gains (losses) for our pension and postretirement plans in the period they occur. The components of net periodic benefit cost other than the service cost component for our plans as well as any actuarial gains or losses are included in “Investment and other income (loss)” on the consolidated statement of income.
The following tables provide the components of total pension benefit cost:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
| Pension Benefits |
| ||||||||
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
| |||
($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Components of total pension benefit cost |
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | i 20 |
| $ | i 13 |
|
| $ | i 8 |
|
Interest cost on projected benefit obligation |
|
| i 25 |
|
| i 18 |
|
|
| i 8 |
|
Expected return on plan assets |
|
| ( i 50) |
|
| ( i 31) |
|
|
| ( i 16) |
|
Amortization of unrecognized loss |
|
| - |
|
| - |
|
|
| i 6 |
|
Total pension (benefit) cost |
| $ | ( i 5) |
| $ | - |
|
| $ | i 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
| Pension Benefits |
| ||||||||
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Components of total pension benefit cost |
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | i 41 |
| $ | i 13 |
|
| $ | i 32 |
|
Interest cost on projected benefit obligation |
|
| i 49 |
|
| i 18 |
|
|
| i 31 |
|
Expected return on plan assets |
|
| ( i 99) |
|
| ( i 31) |
|
|
| ( i 61) |
|
Amortization of unrecognized loss |
|
| - |
|
| - |
|
|
| i 24 |
|
Total pension (benefit) cost |
| $ | ( i 9) |
| $ | - |
|
| $ | i 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefit cost other than the service cost component are included in “Investment and other income” on the consolidated statement of income.
The value of our pension plan assets decreased $ i 545 million from $ i 2,655 million at December 31, 2021 to $ i 2,110 million at June 30, 2022. This decrease primarily resulted from changes in the market value of investments of $ i 506 million including plan expenses, and benefit payments to participants of $ i 113 million, partially offset by contributions of $ i 74 million.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
The following tables provide the components of total postretirement benefit cost:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
|
| Predecessor |
| |||
|
| Postretirement |
| ||||||||
|
| For the three months ended June 30, |
| For the two months ended June 30, |
|
| For the one month ended April 30, |
| |||
($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic postretirement benefit cost |
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | i 3 |
| $ | i 3 |
|
| $ | i 2 |
|
Interest cost on projected benefit obligation |
|
| i 8 |
|
| i 5 |
|
|
| i 2 |
|
Amortization of prior service (benefit) |
|
| ( i 3) |
|
| ( i 1) |
|
|
| ( i 3) |
|
Remeasurement (gain) loss |
|
| ( i 96) |
|
| i 13 |
|
|
| - |
|
Amortization of unrecognized loss |
|
| - |
|
| - |
|
|
| i 2 |
|
Net periodic postretirement (benefit) cost |
| $ | ( i 88) |
| $ | i 20 |
|
| $ | i 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| Successor |
| Successor |
|
| Predecessor |
| |||
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| Postretirement |
| ||||||||
|
| For the six months ended June 30, |
| For the two months ended June 30, |
|
| For the four months ended April 30, |
| |||
($ in millions) |
| 2022 |
| 2021 |
|
| 2021 |
| |||
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Components of net periodic postretirement benefit cost |
|
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|
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|
|
|
|
|
|
Service cost |
| $ | i 7 |
| $ | i 3 |
|
| $ | i 7 |
|
Interest cost on projected benefit obligation |
|
| i 14 |
|
| i 5 |
|
|
| i 9 |
|
Amortization of prior service (benefit) |
|
| ( i 6) |
|
| ( i 1) |
|
|
| ( i 10) |
|
Remeasurement (gain) loss |
|
| ( i 150) |
|
| i 13 |
|
|
| - |
|
Amortization of unrecognized loss |
|
| - |
|
| - |
|
|
| i 5 |
|
Net periodic postretirement (benefit) cost |
| $ | ( i 135) |
| $ | i 20 |
|
| $ | i 11 |
|
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|
|
In the first half of 2022, Frontier amended the medical coverage for certain postretirement benefit plans, which necessitated a remeasurement of its other postretirement benefit (OPEB) obligations. This remeasurement resulted in the recognition of a net actuarial gain of $ i 150 million, which was driven primarily from a higher assumed discount rate relative to December 31, 2021. Upon emergence from bankruptcy, Frontier revised its accounting policy to recognize actuarial gains and losses in the period in which they occur. As such, this gain was recorded in “Investment and other income, net” on our consolidated statements of income.
During the six months ended June 30, 2022, we capitalized $ i 11 million of pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities. During the one month and four months of April 30, 2021, we capitalized $ i 1 million and $ i 7 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. During the two months ended June 30, 2021, we capitalized $ i 4 million of pension and OPEB expense.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
i (16) Commitments and Contingencies:
Although from time to time we make short-term purchasing commitments to vendors with respect to capital expenditures, we generally do not enter into firm, written contracts for such activities. In connection with the accelerated fiber build, we have prioritized diversifying our vendor base and finalizing agreements with vendors for relevant labor and materials. Some of these agreements will have initial two-year terms with an option to extend for i two years through 2025.
Frontier accepted the FCC’s CAF Phase II offer in i 25 states, which provided $ i 313 million in annual support through 2021, to make available 10 Mbps downstream/1 Mbps upstream broadband service to households across some of the i 25 states where we operate.
The deployment deadline was December 31, 2021, and final review and audit of households is not complete. To the extent it is determined we did not enable the required number of households with 10 Mbps downstream/1 Mbps upstream broadband service or we were unable to satisfy other FCC CAF Phase II requirements, Frontier will be required to return a portion of the funds previously received and may be subject to certain other requirements and obligations. We have accrued an amount for any potential shortfall in the household build commitment 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.
On January 30, 2020, the FCC adopted an order establishing RDOF, a competitive reverse auction to provide support to serve high cost areas. The FCC announced the results of its RDOF Phase I auction on December 7, 2020. Frontier was awarded approximately $ i 371 million over i ten years to build gigabit-capable broadband over a fiber-to-the-premises network to approximately i 127,000 locations in i eight states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). The FCC approved Frontier’s Long Form application in March 2022 and Frontier began receiving funding in the second quarter of 2022. Frontier will be required to complete the buildout to these locations by December 31, 2028, with interim target milestones over this period.
On April 30, 2018, an amended consolidated class action complaint was filed in the United States District Court for the District of Connecticut on behalf of certain purported stockholders against Frontier, certain of its current and former directors and officers and the underwriters of certain Frontier securities offerings and in connection with certain disclosures relating to the CTF transaction. The complaint was brought on behalf of all persons who (1) acquired Frontier common stock between February 6, 2015 and February 28, 2018, inclusive, and/or (2) acquired Frontier common stock or Mandatory Convertible Preferred Stock. On March 8, 2019, the District Court granted in its entirety Frontier’s motion to dismiss the complaint and on March 24, 2020, the court denied plaintiffs’ motion for leave to amend. Plaintiffs appealed and prior to oral argument, the parties reached an agreement in principle to resolve the matter. The settlement, which has obtained final court approval, will be covered by insurance and will have no material financial impact on the Company.
On May 19, 2021, the FTC, joined by the attorneys general of Arizona, Indiana, Michigan, North Carolina, and Wisconsin, and two California District Attorneys, filed a complaint against Frontier in the Federal District Court for the Central District of California alleging that Frontier violated federal and state laws by knowingly misrepresenting in its advertisements the Internet speeds it was capable of delivering to DSL customers. On October 4, 2021, the court granted in part and denied in part Frontier’s motion dismiss by dismissing the non-California state claims, but permitting the FTC’s and California’s claims to proceed in the litigation. Frontier expressly denies any wrongdoing but, in the interest of resolving the matter, entered into a settlement with the FTC and California, which required Frontier to make a financial payment of approximately $ i 9 million in costs and civil penalties, along with certain modifications to its DSL advertising and other practices. An accrual was established as of March 31, 2022 for the financial impact of this settlement, which is not material to these
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
financial statements. The settlement was approved by the court and the financial payment was made in the second quarter of 2022.
On July 27, 2022, the Connecticut Public Utility Regulatory Authority (“PURA”) issued a Notice of Violation and Assessment of Civil Penalty Order to Cease and Desist (“NOV”) related to the underground excavation and placement of fiber facilities by Frontier and its contractors in Connecticut. The NOV alleges that Frontier and its contractors failed to comply with certain state excavation regulations which created public safety and compliance issues. The NOV prescribes a $ i 5 million fine, which the Company will challenge in a contested proceeding. The NOV also orders Frontier to discontinue certain underground fiber deployment work until the Company submits a compliance plan to ensure compliance with the applicable regulations. Frontier is complying with the NOV and will seek relief from the underground fiber deployment restrictions. On August 1, 2022, the PURA responded to a Frontier motion, clarifying the restrictions and allowing certain underground construction activity to continue. While the Company does not believe that this matter will have a material impact on its fiber build or financial position, results of operations or cash flows, a prolonged ban on underground installations in Connecticut could adversely impact the Company’s ability to meet its build targets in a timely manner.
In addition, we are party to various legal proceedings (including individual actions, class and putative class actions, and governmental investigations) arising in the normal course of our business covering a wide range of matters and types of claims including, but not limited to, general contract disputes, billing disputes, rights of access, taxes and surcharges, consumer protection, advertising, sales and the provision of services, intellectual property, including, trademark, copyright, and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers. Litigation is subject to uncertainty and the outcome of individual matters is not predictable. However, we believe that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our financial position, results of operations, or cash flows.
In October 2013, the California Attorney General’s Office notified certain Verizon companies, including one of the subsidiaries that we acquired in the CTF Acquisition, of potential violations of California state hazardous waste statutes primarily arising from the disposal of electronic components, batteries and aerosol cans at certain California facilities. We are cooperating with this investigation. We have accrued an amount for potential penalties that we deem to be probable and reasonably estimated, and we do not expect that any potential penalties, if ultimately incurred, will be material in comparison to the established accrual.
We accrue an expense for pending litigation when we determine that an unfavorable outcome is probable, and the amount of the loss can be reasonably estimated. Legal defense costs are expensed as incurred. None of our existing accruals for pending matters, after considering insurance coverage, is material. We monitor our pending litigation for the purpose of adjusting our accruals and revising our disclosures accordingly, when required. Litigation is, however, subject to uncertainty, and the outcome of any particular matter is not predictable. We will vigorously defend our interests in pending litigation, and as of this date, we believe that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our consolidated financial position, results of operations, or our cash flows.
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 i 1 to i 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.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
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)
(Unaudited)
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" related to future events. Forward-looking statements address our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, our ability to comply with the covenants in the agreements governing our indebtedness and other matters. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance and contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “may,” “will,” “would,” or “target.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. We do not intend, nor do we undertake any duty, to update any forward-looking statements.
A wide range of factors could materially affect future developments and performance, including but not limited to:
·our significant indebtedness, our ability to incur substantially more debt in the future, and covenants in the agreements governing our current indebtedness that may reduce our operating and financial flexibility;
·declines in Adjusted EBITDA relative to historical levels that we are unable to offset;
·our ability to successfully implement strategic initiatives, including our fiber buildout and other initiatives to enhance revenue and realize productivity improvements;
·our ability to secure necessary construction resources, materials and permits for our fiber buildout initiative in a timely and cost-effective manner;
·potential disruptions in our supply chain and the effects of inflation resulting from the COVID-19 pandemic, the global microchip shortage, or otherwise, which could adversely impact our business and hinder our fiber expansion plans;
·our ability to effectively manage our operations, operating expenses, capital expenditures, debt service requirement and cash paid for income taxes and liquidity;
·competition from cable, wireless and wireline carriers, satellite, fiber “overbuilders” and over the top companies, and the risk that we will not respond on a timely or profitable basis;
·our ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on our capital expenditures, products and service offerings;
·risks related to disruption in our networks, infrastructure and information technology that result in customer loss and/or incurrence of additional expenses;
·the impact of potential information technology or data security breaches or other cyber-attacks or other disruptions;
·our ability to retain or attract new customers and to maintain relationships with customers, including wholesale customers;
·our reliance on a limited number of key supplies and vendors;
·declines in revenue from our voice services, switched and nonswitched access and video and data services that we cannot stabilize or offset with increases in revenue from other products and services;
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
·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 or to make acquisition of certain assets on terms that are attractive to us, or at all;
·the effects of changes in the availability of federal and state universal service funding or other subsidies to us and our competitors and our ability to obtain future subsidies;
·our ability to meet our CAF II and RDOF obligations and the risk of penalties or obligations to return certain CAF II and RDOF funds;
·our ability to defend against litigation and potentially unfavorable results from current pending and future litigation;
·our ability to comply with applicable federal and state consumer protection requirements;
·the effects of governmental legislation and regulation on our business, including costs, disruptions, possible limitations on operating flexibility and changes to the competitive landscape resulting from such legislation or regulation;
·the impact of regulatory, investigative and legal proceedings and legal compliance risks;
·our ability to effectively manage service quality in the states in which we operate and meet mandated service quality metrics;
·the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments, including the risk that such changes may benefit our competitors more than us, as well as potential future decreases in the value of our deferred tax assets;
·the effects of changes in accounting policies or practices;
·our ability to successfully renegotiate union contracts;
·the effects of increased medical expenses and pension and postemployment expenses;
·changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of our pension plan assets;
·the likelihood that our historical financial information may no longer be indicative of our future performance;
·the impact of adverse changes in economic, political and market conditions in the areas that we serve, the U.S. and globally, including but not limited to, disruption in our supply chain, inflation in pricing for key materials or labor, or other adverse changes resulting from epidemics, pandemics and outbreaks of contagious diseases, including the COVID-19 pandemic, natural disasters, economic or political instability or other adverse public health developments;
·potential adverse impacts of the COVID-19 pandemic on our business and operations, including potential disruptions to the work of our employees arising from health and safety measures such as social distancing, working remotely and recent applicable federal, state and local mandates and prohibitions, our ability to
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
effectively manage increased demand on our network, our ability to maintain relationships with our current or prospective customers and vendors and the ability of our vendors to perform under current or proposed arrangements with us;
·potential adverse impacts of climate change and increasingly stringent environmental laws, rules and regulations, and customer expectations;
·market overhang from the substantial common stock holdings by our former creditors;
·certain provisions of Delaware law and our certificate of incorporation that may prevent efforts by our stockholders to change the direction or management of our company; and
·certain other factors set forth in our other filings with the SEC.
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.
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.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Frontier Communications Parent, Inc. is a provider of communications services in the United States, with approximately 2.8 million broadband customers and 15,074 employees, operating in 25 states as of June 30, 2022. We offer a broad portfolio of communications services for consumer and business customers. These services include data and Internet services, video services, voice services, access services, and advanced hardware and network solutions.
Business Overview
Frontier’s purpose is to Build Gigabit AmericaTM by expanding and transforming our fiber network in order to meet the rapidly increasing demand for data from both our consumer and business customers. We believe that a fiber network has competitive advantages to be able to meet this growing demand, including faster download speeds, faster upload speeds, and lower latency levels than alternative broadband services.
In August 2021, we announced our plan to accelerate our fiber build to reach 10 million total fiber passings by December 31, 2025. We are prioritizing our fiber build activities to locations which we believe will provide the highest investment returns. Over time, we expect our business mix will shift significantly, with a larger percentage of revenue coming from fiber as we implement our expansion plan.
Our strategy focuses on four levers of value creation: fiber deployment, fiber broadband penetration, improving the customer experience, and operational efficiency. We accomplished the following objectives in the second quarter of 2022:
·We built fiber to approximately 281,000 locations, resulting in approximately 4.4 million total locations passed with fiber as of June 30, 2022.
·We accelerated our fiber build and announced that we expect to exceed our 2022 build target of 1 million locations by an additional 100,000 to 200,000 locations. Our plan remains on track, within our established cost parameters, and we have solidified our fiber build supply chain with multi-year agreements with key labor and equipment partners.
·We added 54,000 fiber broadband customer net additions, resulting in fiber broadband customer growth of 13.4% versus the second quarter of 2021.
oIn our Base Fiber Network of 3.2 million locations, we achieved broadband penetration of 43%, an increase of 140bps from the second quarter of 2021 and approaching our terminal penetration target of 45%.
oFiber locations constructed in 2020 reached broadband penetration of 22% and 44% after 12 and 24 months, respectively.
oFiber locations constructed in 2021 reached penetration of 17% after 12 months.
·Fiber broadband customer net additions continued to outpace copper broadband customer net losses, resulting in 8,000 total broadband customer net additions.
·We achieved sequential growth in consumer revenue for the first time in more than three years, led by strong fiber broadband growth.
·We realized $201 million of gross annualized cost savings as of June 30, 2022 and remain on track to exceed our goal of $250 million of gross annual cost savings by 2023.
·We successfully completed an offering of $1.2 billion first lien notes, further strengthening our balance sheet and securing funding for our fiber build through mid-2024.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
During the first half of 2022, markets remained volatile and the economic outlook remains uncertain. We continue to closely monitor market factors including potential disruptions in our supply chain, tightening labor markets, actual or perceived inflation, the cost of borrowing, and evolution of the ongoing COVID-19 pandemic. We continuously evaluate the impact these and other factors may have on our business, including demand for our products and services, our ability to execute on our strategic priorities and our financial condition and results of operations. Through June 30, 2022 the overall operational and financial impacts to our business have not been significant.
Financial Overview
We reported operating income of $166 million and Non-GAAP operating income of $298 million for the three months ended June 30, 2022 and 2021, respectively, a decrease of $132 million. After adjusting for the impact of fresh start accounting, our Non-GAAP operating income would have decreased by $127 million, as compared to the prior year period.
We reported operating income of $287 million and Non-GAAP operating income of $557 million for the six months ended June 30, 2022 and 2021, respectively, a decrease of $270 million. After adjusting for the impact of fresh start accounting, our Non-GAAP operating income would have decreased by $250 million, as compared to the prior year period.
Our operating results decreased primarily due to decreases in subsidy and other revenue, and lease impairment charges, partially offset by a reduction in depreciation and amortization expense as a result of the lower asset bases established upon our implementation of fresh start accounting and lower video content costs as compared to the corresponding period in 2021.
Presentation of Results of Operations
The sections below include tables that present customer counts, average monthly consumer revenue per customer (“ARPC”) and consumer customer churn. We define churn as the number of consumer customer deactivations during the month divided by the number of consumer customers at the beginning of the month and utilize the average of each monthly churn in the period. Management believes that consumer customer counts and average monthly revenue per customer are important factors in evaluating our consumer customer trends. Among the key services we provide to consumer customers are voice service, data service and video service. We continue to explore the potential to provide additional services to our customer base, with the objective of meeting 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, 2021. The following charts present key customer metrics, disaggregation of revenue, and the results of operations of the consolidated company.
(a)Results of Operations
Unless otherwise indicated, the discussion of the customer metrics and components of operating income for the table that follows relates only to the Non-GAAP financial results for the three and six months ended June 30, 2022, as compared to the financial results for the three and six months ended June 30, 2021.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Customer Trends
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| As of or for the three months ended June 30, | ||||||||
| (Customer and Employee Metrics in thousands) |
| 2022 |
|
| 2021 |
| % Change | |||
| Customers |
|
|
|
|
|
|
|
|
|
|
| Consumer |
|
| 3,159 |
|
|
| 3,196 |
| (1) | % |
|
|
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|
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| Consumer Customer Metrics |
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|
| Net customer additions (losses) |
|
| (10) |
|
|
| (38) |
| (74) | % |
| ARPC |
| $ | 83.35 |
|
| $ | 85.65 |
| (3) | % |
| Customer Churn |
|
| 1.53% |
|
|
| 1.54% |
| (1) | % |
|
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|
|
|
|
|
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| Broadband Customer Metrics (1) |
|
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| Fiber Broadband |
|
|
|
|
|
|
|
|
|
|
| Consumer customers |
|
| 1,438 |
|
|
| 1,263 |
| 14 | % |
| Business customers |
|
| 102 |
|
|
| 95 |
| 7 | % |
| Consumer net customer additions |
|
| 50 |
|
|
| 12 |
| 317 | % |
| Consumer customer churn |
|
| 1.43% |
|
|
| 1.53% |
| (6) | % |
| Consumer customer ARPU |
| $ | 63.35 |
|
| $ | 63.10 |
| 0 | % |
| Copper Broadband |
|
|
|
|
|
|
|
|
|
|
| Consumer customers |
|
| 1,163 |
|
|
| 1,297 |
| (10) | % |
| Business customers |
|
| 124 |
|
|
| 143 |
| (13) | % |
| Consumer net customer additions (losses) |
|
| (41) |
|
|
| (30) |
| 37 | % |
| Consumer customer churn |
|
| 1.73% |
|
|
| 1.67% |
| 3 | % |
| Consumer customer ARPU |
| $ | 48.47 |
|
| $ | 44.80 |
| 8 | % |
|
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| Other Metrics |
|
|
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|
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| Employees |
|
| 15,074 |
|
|
| 16,005 |
| (6) | % |
|
|
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|
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|
| For the six months ended June 30, | ||||||||
| (Customer and Employee Metrics in thousands) |
| 2022 |
|
| 2021 |
| % Change | |||
| Consumer Customer Metrics |
|
|
|
|
|
|
|
|
|
|
| Net customer additions (losses) |
|
| (6) |
|
|
| (68) |
| (91) | % |
| ARPC |
| $ | 82.51 |
|
| $ | 86.34 |
| (4) | % |
| Customer Churn |
|
| 1.44% |
|
|
| 1.49% |
| (3) | % |
|
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| Broadband Customer Metrics (1) |
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| Fiber Broadband |
|
|
|
|
|
|
|
|
|
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| Consumer net customer additions |
|
| 102 |
|
|
| 25 |
| 308 | % |
| Consumer customer churn |
|
| 1.31% |
|
|
| 1.47% |
| (11) | % |
| Consumer customer ARPU |
| $ | 62.76 |
|
| $ | 61.88 |
| 1 | % |
| Copper Broadband |
|
|
|
|
|
|
|
|
|
|
| Consumer net customer additions |
|
| (71) |
|
|
| (52) |
| 37 | % |
| Consumer customer churn |
|
| 1.63% |
|
|
| 1.65% |
| (1) | % |
| Consumer customer ARPU |
| $ | 47.09 |
|
| $ | 43.98 |
| 7 | % |
|
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(1) | Amounts presented exclude related metrics for our wholesale customers. | ||||||||||
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Customers
We experienced a decrease in customers of approximately 1% as of June 30, 2022, as compared to the prior year period.
The average monthly consumer revenue per customer (“consumer ARPC”) decreased $2.30, or 3%, to $83.35 and $3.83, or 4%, to $82.51 for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021, respectively.
The decrease for the quarter ended June 30, 2022, was primarily a result of decreased video services and consumer voice services, slightly offset by increased fiber data as well as price adjustments and promotional roll-offs on our voice, data and video services. The moderate decline in ARPC is expected to continue as our customer mix becomes more weighted towards broadband service. We have de-emphasized the sale of low margin video products, which have been a material part of the overall ARPC. In our expansion markets, we expect 15% and 20% penetration within 12 months and 25% after 24 months.
Fiber Broadband Customers
The Company has initiated an investment strategy focused on expanding and improving its fiber network. In conjunction with this strategy, the Company is also working to improve its product positioning in both existing and new fiber markets.
Although still in the early stages of this fiber investment strategy, results are promising. The quarter ended June 30, 2022 represents the twelfth consecutive quarter of positive consumer fiber net adds. For the quarter ended June 30, 2022, Frontier added 50,000 consumer fiber broadband customers compared to 12,000 for the three months ended June 30, 2021. Customers who migrated from our copper base constituted a minor portion of these consumer fiber broadband customer net additions in the six months ended June 30, 2022.
For the three and six months ended June 30, 2022, Frontier added 4,000 and 6,000 business fiber broadband customers compared to zero net additions for both the three and six months ended June 30, 2021.
Our focus on expanding and improving our fiber network is contributing to improved customer retention. Our average monthly consumer fiber broadband churn was 1.43% and 1.31% for the three and six months ended June 30, 2022, compared to 1.53% and 1.47% for the three and six months ended June 30, 2021, respectively. The improvements in customer churn were driven partly by increased focus at key customer touchpoints such as installation, first bill, and end of promotion periods, and partly by improved retention associated with inflation-related pricing actions, which were implemented in first quarter of 2021 and second quarter of 2022.
In addition to our improvement in fiber net adds, we continue to see improvements in the average monthly consumer fiber broadband revenue per customer which increased $0.25 to $63.35 and $0.88 to $62.76 for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021, respectively. These increases are due to price increases and shifting mix towards higher speed tiers, a shift which has accelerated since the launch of our 2 gigabit offering on February 22, 2022.
Copper Broadband Customers
For the three and six months ended June 30, 2022, Frontier lost 41,000 and 71,000 consumer copper broadband customers compared to a loss of 30,000 and 52,000 for the three and six months ended June 30, 2021, respectively. Our fiber investment strategy has impacted these results as new fiber markets will not only cease selling the copper broadband product, but we will focus on converting existing copper broadband customers to a fiber product.
For the three and six months ended June 30, 2022, Frontier lost 5,000 and 9,000 business copper broadband customers compared to a loss of 4,000 and 9,000 in the three and six months ended June 30, 2021, respectively.
Our average monthly consumer copper broadband churn was 1.73% and 1.63% for the three and six months ended
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
June 30, 2022, compared to 1.67% and 1.65% in the three and six months ended June 30, 2021. The reductions in customer churn were primarily driven by customer retention initiatives.
Financial Results
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|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
| Predecessor |
| Non-GAAP Combined |
|
|
|
|
| ||||
|
|
| For the three months ended June 30, |
| For the two months ended June 30, |
| For the one month ended April 30, |
| For the three months ended June 30, |
|
|
|
|
| ||||
|
|
| 2022 |
| 2021 |
| 2021 |
| 2021 |
| % Change |
| ||||||
| Data and Internet services |
| $ | 847 |
| $ | 556 |
| $ | 283 |
| $ | 839 |
| 1 | % |
|
|
| Voice services |
|
| 381 |
|
| 283 |
|
| 160 |
|
| 443 |
| (14) | % |
|
|
| Video services |
|
| 134 |
|
| 105 |
|
| 54 |
|
| 159 |
| (16) | % |
|
|
| Other |
|
| 80 |
|
| 62 |
|
| 30 |
|
| 92 |
| (13) | % |
|
|
| Revenue from contracts
|
|
| 1,442 |
|
| 1,006 |
|
| 527 |
|
| 1,533 |
| (6) | % |
|
|
| Subsidy and other revenue |
|
| 17 |
|
| 55 |
|
| 28 |
|
| 83 |
| (80) | % |
|
|
| Revenue |
|
| 1,459 |
|
| 1,061 |
|
| 555 |
|
| 1,616 |
| (10) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Service |
|
| 546 |
|
| 396 |
|
| 210 |
|
| 606 |
| (10) | % |
|
|
| Selling, general and administrative expenses |
|
| 427 |
|
| 269 |
|
| 129 |
|
| 398 |
| 7 | % |
|
|
| Depreciation and amortization |
|
| 290 |
|
| 179 |
|
| 119 |
|
| 298 |
| (3) | % |
|
|
| Restructuring costs and other charges |
|
| 30 |
|
| 11 |
|
| 5 |
|
| 16 |
| 88 | % |
|
|
| Total operating expenses |
| $ | 1,293 |
| $ | 855 |
| $ | 463 |
| $ | 1,318 |
| (2) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
| 166 |
|
| 206 |
|
| 92 |
|
| 298 |
| (44) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
|
| 791 |
|
| 543 |
|
| 283 |
|
| 826 |
| (4) | % |
|
|
| Business and wholesale |
|
| 651 |
|
| 463 |
|
| 244 |
|
| 707 |
| (8) | % |
|
|
| Revenue from contracts |
| $ | 1,442 |
| $ | 1,006 |
| $ | 527 |
| $ | 1,533 |
| (6) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiber revenue |
|
| 685 |
|
| 455 |
|
| 225 |
|
| 680 |
| 1 | % |
|
|
| Copper revenue |
|
| 757 |
|
| 551 |
|
| 283 |
|
| 834 |
| (9) | % |
|
|
| Non-network specific revenue |
|
| - |
|
| - |
|
| 19 |
|
| 19 |
| (100) | % |
|
|
| Revenue from contracts |
| $ | 1,442 |
| $ | 1,006 |
| $ | 527 |
| $ | 1,533 |
| (6) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Successor |
| Predecessor |
| Non-GAAP Combined |
|
|
|
| ||||
|
|
| For the six months ended June 30, |
| For the two months ended June 30, |
| For the four months ended April 30, |
| For the six months ended June 30, |
|
|
|
| ||||
|
|
| 2022 |
| 2021 |
| 2021 |
| 2021 |
| % Change |
| |||||
| Data and Internet services |
| $ | 1,683 |
| $ | 556 |
| $ | 1,125 |
| $ | 1,681 |
| 0 | % |
|
| Voice services |
|
| 767 |
|
| 283 |
|
| 647 |
|
| 930 |
| (18) | % |
|
| Video services |
|
| 271 |
|
| 105 |
|
| 223 |
|
| 328 |
| (17) | % |
|
| Other |
|
| 163 |
|
| 62 |
|
| 125 |
|
| 187 |
| (13) | % |
|
| Revenue from contracts |
|
| 2,884 |
|
| 1,006 |
|
| 2,120 |
|
| 3,126 |
| (8) | % |
|
| Subsidy and other revenue |
|
| 22 |
|
| 55 |
|
| 111 |
|
| 166 |
| (87) | % |
|
| Revenue |
|
| 2,906 |
|
| 1,061 |
|
| 2,231 |
|
| 3,292 |
| (12) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Service |
|
| 1,099 |
|
| 396 |
|
| 830 |
|
| 1,226 |
| (10) | % |
|
| Selling, general and administrative expenses |
|
| 862 |
|
| 269 |
|
| 537 |
|
| 806 |
| 7 | % |
|
| Depreciation and amortization |
|
| 574 |
|
| 179 |
|
| 506 |
|
| 685 |
| (16) | % |
|
| Restructuring costs and other charges |
|
| 84 |
|
| 11 |
|
| 7 |
|
| 18 |
| 367 | % |
|
| Total operating expenses |
| $ | 2,619 |
| $ | 855 |
| $ | 1,880 |
| $ | 2,735 |
| (4) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
| 287 |
|
| 206 |
|
| 351 |
|
| 557 |
| (48) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
|
| 1,567 |
|
| 543 |
|
| 1,133 |
|
| 1,676 |
| (7) | % |
|
| Business and wholesale |
|
| 1,317 |
|
| 463 |
|
| 987 |
|
| 1,450 |
| (9) | % |
|
| Revenue from contracts |
| $ | 2,884 |
| $ | 1,006 |
| $ | 2,120 |
| $ | 3,126 |
| (8) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiber revenue |
|
| 1,357 |
|
| 455 |
|
| 903 |
|
| 1,358 |
| (0) | % |
|
| Copper revenue |
|
| 1,527 |
|
| 551 |
|
| 1,140 |
|
| 1,691 |
| (10) | % |
|
| Non-network specific revenue |
|
| - |
|
| - |
|
| 77 |
|
| 77 |
| (100) | % |
|
| Revenue from contracts |
| $ | 2,884 |
| $ | 1,006 |
| $ | 2,120 |
| $ | 3,126 |
| (8) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
REVENUE
The table below presents our revenue by technology for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Non-GAAP Combined |
|
|
|
|
|
|
| ||
|
|
| For the three months |
| For the three months |
|
|
|
|
|
|
| ||
|
|
| ended June 30, |
| ended June 30, |
| $ Increase |
| % Increase |
| ||||
| ($ in millions) |
| 2022 |
| 2021 |
| (Decrease) |
| (Decrease) |
| ||||
| Fiber |
| $ | 685 |
| $ | 680 |
| $ | 5 |
| 1 | % |
|
| Copper |
|
| 757 |
|
| 834 |
|
| (77) |
| (9) | % |
|
| Other (2) |
|
| - |
|
| 19 |
|
| (19) |
| (100) | % |
|
| Revenue from contracts with customers (1) |
|
| 1,442 |
|
| 1,533 |
|
| (91) |
| (6) | % |
|
| Subsidy revenue |
|
| 17 |
|
| 83 |
|
| (66) |
| (80) | % |
|
| Total revenue |
| $ | 1,459 |
| $ | 1,616 |
| $ | (157) |
| (10) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Non-GAAP Combined |
|
|
|
|
|
|
| ||
|
|
| For the six months |
| For the six months |
|
|
|
|
|
|
| ||
|
|
| ended June 30, |
| ended June 30, |
| $ Increase |
| % Increase |
| ||||
| ($ in millions) |
| 2022 |
| 2021 |
| (Decrease) |
| (Decrease) |
| ||||
| Fiber |
| $ | 1,357 |
| $ | 1,358 |
| $ | (1) |
| (0) | % |
|
| Copper |
|
| 1,527 |
|
| 1,691 |
|
| (164) |
| (10) | % |
|
| Other (2) |
|
| - |
|
| 77 |
|
| (77) |
| (100) | % |
|
| Revenue from contracts with customers (1) |
|
| 2,884 |
|
| 3,126 |
|
| (242) |
| (8) | % |
|
| Subsidy revenue |
|
| 22 |
|
| 166 |
|
| (144) |
| (87) | % |
|
| Total revenue |
| $ | 2,906 |
| $ | 3,292 |
| $ | (386) |
| (12) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes $16 million and $16 million, and $32 million and $37 million of lease revenue for the three and six months ended June 30, 2022 and 2021, respectively.
(2)Includes USF fees that, in conjunction with the application of fresh start accounting, are now recorded net.
Our revenue streams are primarily a result of recurring data, voice, and video services delivered over either our copper or fiber network. Revenues are considered copper or fiber based on the “last-mile” technology used to connect the customer location. With our investment strategy to expand and improve our fiber network and the corresponding fiber focus of our sales and marketing efforts, the company is experiencing growth in fiber broadband revenue and a decline in copper revenue. We expect this trend to continue due to strong fiber demand and the migration of customers from copper to fiber once the fiber network is available.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Revenue for our consumer and business and wholesale customers was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Non-GAAP Combined |
|
|
|
|
|
|
| ||
|
|
| For the three months ended June 30, |
| For the three months ended June 30, |
| $ Increase |
| % Increase |
| ||||
| ($ in millions) |
| 2022 |
| 2021 |
| (Decrease) |
| (Decrease) |
| ||||
| Consumer |
| $ | 791 |
| $ | 826 |
| $ | (35) |
| (4) | % |
|
| Business and wholesale |
|
| 651 |
|
| 707 |
|
| (56) |
| (8) | % |
|
| Revenue from contracts with customers (1) |
|
| 1,442 |
|
| 1,533 |
|
| (91) |
| (6) | % |
|
| Subsidy and other revenue |
|
| 17 |
|
| 83 |
|
| (66) |
| (80) | % |
|
| Total revenue |
| $ | 1,459 |
| $ | 1,616 |
| $ | (157) |
| (10) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Non-GAAP Combined |
|
|
|
|
|
|
| ||
|
|
| For the six months ended June 30, |
| For the six months ended June 30, |
| $ Increase |
| % Increase |
| ||||
| ($ in millions) |
| 2022 |
| 2021 |
| (Decrease) |
| (Decrease) |
| ||||
| Consumer |
| $ | 1,567 |
| $ | 1,676 |
| $ | (109) |
| (7) | % |
|
| Business and wholesale |
|
| 1,317 |
|
| 1,450 |
|
| (133) |
| (9) | % |
|
| Revenue from contracts with customers (1) |
|
| 2,884 |
|
| 3,126 |
|
| (242) |
| (8) | % |
|
| Subsidy and other revenue |
|
| 22 |
|
| 166 |
|
| (144) |
| (87) | % |
|
| Total revenue |
| $ | 2,906 |
| $ | 3,292 |
| $ | (386) |
| (12) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes $16 million and $16 million, and $32 million and $37 million of lease revenue for the three and six months ended June 30, 2022 and 2021, respectively.
We conduct business with a range of consumer, business and wholesale customers and we generate both recurring and non-recurring revenues. Recurring revenues are primarily billed at fixed recurring rates, with some services billed based on usage. Revenue recognition is not dependent upon significant judgments by management, with the exception of a determination of the provision for expected credit losses.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Consumer
Consumer customer losses were driven by reductions in our copper broadband and stand-alone voice customers, partially offset by net additions of fiber broadband customers. Customer preferences as well as our fiber investment initiative is resulting in a migration of the customer base to fiber.
For the three and six months ended June 30, 2022, Frontier lost 10,000 and 6,000 consumer customers compared to a loss of 38,000 and 68,000 for the three and six months ended June 30, 2021. This includes net gains of consumer broadband customers of 9,000 and 31,000 for the three and six months ended June 30, 2022, as compared to net losses of our consumer broadband customers of approximately 18,000 and 27,000 during the same periods in 2021. This improvement is a direct result of our fiber initiatives.
For the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021:
·we experienced 4% and 7% decline in consumer revenues for the three and six months ended June 30, 2022, respectively, driven by a 3% and 4% decrease in ARPC and 1% decline in the number of customers as compared to the same periods in 2021. This decline was driven predominantly a result of decreases in voice, video and copper broadband, offset by increases in fiber broadband. The Company’s fiber initiative will result in our revenue mix continuing to move to fiber broadband.
·we experienced 13% and 12% improvement in consumer fiber broadband revenues for the three and six months ended June 30, 2022, respectively. This improvement is a result of our fiber initiative which resulted in net adds of 175,000 customers during the 12 month period, and our continued focus on product positioning in both new and existing markets which resulted in ARPU improvements of $0.25 and $0.88 for the three and six months ended June 30, 2022.
·we experienced approximately 2% and 3% decline in consumer copper broadband revenues for the three and six months ended June 30, 2022. As our copper footprint is transitioned to fiber, we expect fewer copper sales opportunities, and will proactively migrate existing broadband customers from copper to fiber, both of which will reduce our copper net adds.
Business
For the three and six months ended June 30, 2022, we experienced an 8% and 9% decline in our business and wholesale revenues, respectively. Business revenues declined primarily due to the secular pressures in copper voice revenue as well as the loss of equipment revenue associated with the sale of our equipment subsidiary. Wholesale revenues declined primarily due to secular pressures in copper voice revenue, legacy circuit revenue, and lower rates for our network access services charged to our wholesale customers for the six months ended June 30, 2022.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Revenue by product and service type was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Non-GAAP Combined |
|
|
|
|
|
|
| ||
|
|
| For the three months ended June 30, |
| For the three months ended June 30, |
| $ Increase |
| % Increase |
| ||||
| ($ in millions) |
| 2022 |
| 2021 |
| (Decrease) |
| (Decrease) |
| ||||
| Data and Internet services |
| $ | 847 |
| $ | 839 |
| $ | 8 |
| 1 | % |
|
| Voice services |
|
| 381 |
|
| 443 |
|
| (62) |
| (14) | % |
|
| Video services |
|
| 134 |
|
| 159 |
|
| (25) |
| (16) | % |
|
| Other |
|
| 80 |
|
| 92 |
|
| (12) |
| (13) | % |
|
| Revenue from contracts with customers (1) |
|
| 1,442 |
|
| 1,533 |
|
| (91) |
| (6) | % |
|
| Subsidy and other revenue |
|
| 17 |
|
| 83 |
|
| (66) |
| (80) | % |
|
| Total revenue |
| $ | 1,459 |
| $ | 1,616 |
| $ | (157) |
| (10) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor |
| Non-GAAP Combined |
|
|
|
|
|
|
| ||
|
|
| For the six months ended June 30, |
| For the six months ended June 30, |
| $ Increase |
| % Increase |
| ||||
| ($ in millions) |
| 2022 |
| 2021 |
| (Decrease) |
| (Decrease) |
| ||||
| Data and Internet services |
| $ | 1,683 |
| $ | 1,681 |
| $ | 2 |
| 0 | % |
|
| Voice services |
|
| 767 |
|
| 930 |
|
| (163) |
| (18) | % |
|
| Video services |
|
| 271 |
|
| 328 |
|
| (57) |
| (17) | % |
|
| Other |
|
| 163 |
|
| 187 |
|
| (24) |
| (13) | % |
|
| Revenue from contracts with customers (1) |
|
| 2,884 |
|
| 3,126 |
|
| (242) |
| (8) | % |
|
| Subsidy and other revenue |
|
| 22 |
|
| 166 |
|
| (144) |
| (87) | % |
|
| Total revenue |
| $ | 2,906 |
| $ | 3,292 |
| $ | (386) |
| (12) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes $16 million and $16 million, and $32 million and $37 million of lease revenue for the three and six months ended June 30, 2022 and 2021, respectively.
We categorize our products, services, and other revenues into the following five categories:
Data and Internet Services
We provide data and Internet services to our consumer, business and wholesale customers. Data and Internet services consist of fiber broadband services, copper broadband services and network access revenues.
Our fiber expansion strategy is expected to positively impact data and Internet services. This network expansion will provide faster, symmetrical broadband speeds and provide customer and revenue growth opportunities for fiber broadband and certain network access products like ethernet. This initiative will also create an opportunity for us to provide more fiber-based services to our customers.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
| ($ in millions) | For the three months ended |
| For the six months ended |
| ||
| Data and Internet services revenue, June 30, 2021 | $ | 839 |
| $ | 1,681 |
|
| Change in fiber broadband revenue |
| 34 |
|
| 63 |
|
| Change in copper broadband revenue |
| (9) |
|
| (21) |
|
| Change in other data and Internet services |
| (16) |
|
| (38) |
|
| Impact of fresh start accounting |
| (1) |
|
| (2) |
|
| Data and Internet services revenue, June 30, 2022 | $ | 847 |
| $ | 1,683 |
|
|
|
|
|
|
|
|
|
Upon emergence from bankruptcy, the accumulated balances in deferred installation fee revenue were eliminated as part of fresh start accounting, which has resulted in a decline in revenue recognition.
The revenue growth was primarily driven by 4% improvement in our broadband revenue offset by declines in other data revenue for both the three and six months ended June 30, 2022, as compared to the corresponding periods in 2021. The increases in broadband revenue were driven by growth in fiber, offset somewhat by continued declines in copper. The other data revenues declines were the result of an ongoing migration of our carrier customers from legacy technology circuits to lower priced ethernet circuits. The period over period decrease in data and Internet services revenue continued to improve for the three and six months ended June 30, 2022, as a result of the Company’s initiatives.
Voice Services
The Company provides voice services consisting of traditional local and long-distance service and voice over Internet protocol (VoIP) service provided over our fiber and copper broadband products. It also includes enhanced features such as call waiting, caller identification and voice messaging services.
|
|
|
|
|
|
|
|
| ($ in millions) | For the three months ended |
| For the six months ended |
| ||
| Voice services revenue, June 30, 2021 | $ | 443 |
| $ | 930 |
|
| Change in other voice services revenue |
| (43) |
|
| (87) |
|
| Impact of fresh start accounting |
| (19) |
|
| (76) |
|
| Voice services revenue, June 30, 2022 | $ | 381 |
| $ | 767 |
|
|
|
|
|
|
|
|
|
Upon implementation of fresh start accounting policies, Frontier is recording both revenue and expense related to Universal Service Fund (“USF”) surcharges on a net basis, as opposed to recording each on a gross basis prior to emergence. These declines were primarily due to net losses in business and consumer customers in addition to fewer customers bundling voice services with broadband.
Video Services
Video services include revenues generated from traditional television (TV) services provided directly to consumer customers as well as satellite TV services provide through Dish. Video services also includes pay-per-view revenues, video on demand, equipment rentals, and video advertising. The Company has made the strategic decision to limit sales of new traditional TV services, focusing on our broadband products and OTT video options. We are partnering with OTT video providers and expect this to grow as OTT options are offered with our broadband products.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
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| ($ in millions) | For the three months ended |
| For the six months ended |
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| Video services revenue, June 30, 2021 | $ | 159 |
| $ | 328 |
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| Change in video services revenue |
| (23) |
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| (49) |
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| Impact of fresh start accounting |
| (2) |
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| (8) |
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| Video services revenue, June 30, 2022 | $ | 134 |
| $ | 271 |
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Under our fresh start accounting policies, Frontier is recording both revenue and expense related to certain surcharges and taxes on a net basis, as opposed to recording each on a gross basis prior to emergence. These declines were primarily driven by linear video customer losses, partially offset by price increases.
Other
Other customer revenue includes directory listing services and switched access revenue. 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. These services are primarily billed on a minutes-of-use basis applying tariffed rates filed with the FCC or state agencies.
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| ($ in millions) | For the three months ended |
| For the six months ended |
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| Other revenue, June 30, 2021 | $ | 92 |
| $ | 187 |
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| Change in other services revenue |
| (14) |
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| (32) |
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| Impact of fresh start accounting |
| 2 |
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| 8 |
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| Other revenue, June 30, 2022 | $ | 80 |
| $ | 163 |
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Under our fresh start accounting policies, Frontier has classified the provision for bad debt as expense, rather than a reduction of revenue as it was recorded prior to emergence, resulting in increases to other customer revenues of $4 million and $14 million for the three and six months ended June 30, 2022, respectively. Additionally, the accumulated balances in deferred installation fee revenue were eliminated as part of fresh start accounting, which has resulted in a $2 million and $6 million decline in revenue recognized for the three and six months ended June 30, 2022, as compared to the prior year periods. After adjusting for the impacts of these policy changes, other customer services revenue declined $14 million and $32 million for the three and six months ended June 30, 2022, respectively. These decreases were primarily driven by reductions in CPE sales, late payment fees, early termination fees and reconnect fees.
Subsidy and other revenue
Subsidy and other revenue decreased $66 million and $144 million for the three and six months ended June 30, 2022, compared to the prior year period, primarily due to the CAF II program which was completed in 2021.
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| ($ in millions) | For the three months ended |
| For the six months ended |
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| Subsidy and other revenue, June 30, 2021 | $ | 83 |
| $ | 166 |
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| Change in CAF II subsidies |
| (78) |
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| (157) |
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| Change in RDOF, subsidy, and other services revenue |
| 11 |
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| 8 |
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| Impact of fresh start accounting |
| 1 |
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| 5 |
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| Subsidy and other revenue, June 30, 2022 | $ | 17 |
| $ | 22 |
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Upon implementation of new fresh start accounting policies, certain governmental grants that were historically presented on a net basis as part of capital expenditures, are presented on a gross basis and included in subsidy, resulting in increases to Subsidy and other revenue of $1 million and $5 million for the three and six months ended June 30, 2022.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
OPERATING EXPENSES
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| Operating expenses: |
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| Cost of Service | $ | 546 |
| $ | 606 |
| $ | (60) |
| (10) | % |
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| Selling, general and administrative expenses |
| 427 |
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| 398 |
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| 29 |
| 7 | % |
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| Depreciation and amortization |
| 290 |
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| 298 |
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| (8) |
| (3) | % |
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| Restructuring costs and other charges |
| 30 |
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| 16 |
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| 14 |
| 88 | % |
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| Total operating expenses | $ | 1,293 |
| $ | 1,318 |
| $ | (25) |
| (2) | % |
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| Non-GAAP Combined |
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| ended June 30, |
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| 2021 |
| Variance |
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| Operating expenses: |
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| Cost of Service | $ | 1,099 |
| $ | 1,226 |
| $ | (127) |
| (10) | % |
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| Selling, general and administrative expenses |
| 862 |
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| 806 |
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| 56 |
| 7 | % |
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| Depreciation and amortization |
| 574 |
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| 685 |
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| (111) |
| (16) | % |
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| Restructuring costs and other charges |
| 84 |
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| 18 |
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| 66 |
| 367 | % |
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| Total operating expenses | $ | 2,619 |
| $ | 2,735 |
| $ | (116) |
| (4) | % |
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Cost of service
Cost of service 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.
As a result of the fresh start accounting policy change to account for USF fees and certain other surcharges and taxes on a net basis instead of on a gross basis in both revenue and expense, cost of service decreased by $21 million and $84 million for the three and six months ended June 30, 2022, respectively. After adjusting for this fresh start change, cost of service declined $39 million and $43 million for the three and six months ended June 30, 2022, respectively. For the three and six months ended June 30, 2022, the decrease in cost of service expense was driven by lower video content costs as a result of declines in video customers, non-renewal of certain content agreements and decreased CPE costs. These decreases more than offset higher fuel and energy prices, and outside service rate increases resulting from increased inflation.
Selling, general, and administrative expenses
Selling, general, and administrative expenses (SG&A expenses) include the salaries, wages and related benefits and the related costs of corporate and sales personnel, travel, insurance, non-network related rent, advertising, and other administrative expenses.
As a result of the fresh start accounting policy change to classify the provision for bad debt as an expense rather than a reduction to revenue, SG&A expenses were $4 million and $14 million higher for the three and six months ended June 30, 2022, respectively. Additionally, as a result of fresh start accounting policy changes, we have expensed $4 million and $17 million of certain administrative items that were previously capitalized by the predecessor for the three and six months ended June 30, 2022. After adjusting for the fresh start impacts, SG&A expenses increased by $21 million and $25 million for the three and six months ended June 30, 2022. This increase was primarily a result of transformational investments that are non-recurring such as rebranding costs, higher professional services and recruiting fees, partially offset by a non-recurring $8 million sales tax refund in the current quarter.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Pension and Other Postretirement Employee Benefit (OPEB) costs
Frontier allocates certain pension/OPEB expense to Cost of service and SG&A expenses. Total pension and OPEB service costs were as follows:
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| Successor |
| Non-GAAP Combined |
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| ($ in millions) |
| For the three months ended June 30, 2022 |
| For the three months ended June 30, 2021 |
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| Total pension/OPEB expenses |
| $ | 23 |
| $ | 26 |
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| Less: costs capitalized into capital expenditures |
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| (5) |
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| (5) |
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| Net pension/OPEB costs |
| $ | 18 |
| $ | 21 |
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| Non-GAAP Combined |
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| ($ in millions) |
| For the six months ended June 30, 2022 |
| For the six months ended June 30, 2021 |
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| Total pension/OPEB expenses |
| $ | 48 |
| $ | 55 |
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| Less: costs capitalized into capital expenditures |
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| (11) |
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| (11) |
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| Net pension/OPEB costs |
| $ | 37 |
| $ | 44 |
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Depreciation and amortization
As a result of fresh start accounting, both Frontier’s fixed assets and intangible assets were adjusted to fair value as of the Effective Date. These changes, which decreased the carrying value of its fixed assets and increased the carrying value of its intangible assets. For the three and six months ended June 30, 2022, the decreased depreciation and amortization expense was driven by lower depreciation expense as a result of reduced fixed asset bases following the fresh start adjustment noted above.
Restructuring costs and other charges
Restructuring costs and other charges consist of consulting and advisory fees related to our balance sheet restructuring prior to filing our Chapter 11 Cases and subsequent to the Emergence Date, workforce reductions, transformation initiatives, lease impairment costs, and other restructuring expenses.
For the three months ended June 30, 2022, restructuring costs and other charges increased due to, $26 million of severance and employee costs resulting from workforce reductions, and $4 million of costs related to other restructuring activities.
For the six months ended June 30, 2022, restructuring costs and other charges increased due to $44 million of lease impairment costs from the strategic exit of certain facilities, $32 million of severance and employee costs resulting from workforce reductions, and $8 million of costs related to other restructuring activities. Of the $32 million in severance and employee costs, approximately $26 million related to the second quarter of 2022, as a result of larger workforce reductions.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
OTHER NON-OPERATING INCOME AND EXPENSE
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| Non-GAAP Combined |
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| For the three months ended June 30, |
| For the two months ended June 30, |
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| For the one month ended April 30, |
| For the three months ended June 30, |
| $ |
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| ($ in millions) |
| 2022 |
| 2021 |
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| Investment and other income (loss), net |
| $ | 122 |
| $ | (2) |
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| $ | (1) |
| $ | (3) |
| $ | 125 |
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| NM |
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| Reorganization items, net |
| $ | - |
| $ | - |
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| $ | 4,196 |
| $ | 4,196 |
| $ | (4,196) |
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| (100) | % |
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| Interest expense |
| $ | (118) |
| $ | (62) |
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| $ | (29) |
| $ | (91) |
| $ | (27) |
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| 30 | % |
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| Income tax expense (benefit) |
| $ | 69 |
| $ | 43 |
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| $ | (223) |
| $ | (180) |
| $ | 249 |
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| (138) | % |
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| Non-GAAP Combined |
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| For the six months ended June 30, |
| For the two months ended June 30, |
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| For the four months ended April 30, |
| For the six months ended June 30, |
| $ |
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| ||||||
| ($ in millions) |
| 2022 |
| 2021 |
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| 2021 |
| 2021 |
| Variance |
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| Investment and other income (loss), net |
| $ | 199 |
| $ | (2) |
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| $ | 1 |
| $ | (1) |
| $ | 200 |
|
| NM |
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| Reorganization items, net |
| $ | - |
| $ | - |
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| $ | 4,171 |
| $ | 4,171 |
| $ | (4,171) |
|
| (100) | % |
|
| Interest expense |
| $ | (221) |
| $ | (62) |
|
| $ | (118) |
| $ | (180) |
| $ | (41) |
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| 23 | % |
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| Income tax expense (benefit) |
| $ | 99 |
| $ | 43 |
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| $ | (136) |
| $ | (93) |
| $ | 192 |
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| (206) | % |
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| NM - Not meaningful |
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Investment and other income, net
Investment and other income, net increased by $125 million and $200 million for the three and six months ended June 30, 2022, driven by a remeasurement gain related to our other postretirement benefit obligation of $96 million and $150 million. This was partially offset by an increase of $10 million and $31 million non-operating pension income, as a result of actuarial losses that are no longer being amortized from accumulated other comprehensive income (loss).
Reorganization items, net
The Company has incurred costs associated with the reorganization, primarily the write-off of certain debt issuance costs and net discounts, financing costs, and legal and professional fees and fresh start accounting adjustments. These include expenses incurred subsequent to the Petition Date. During the three and six months ended June 30, 2021, Frontier recognized $4,196 million and $4,171 million in reorganization items associated with the restructuring of our balance sheet.
For the three and six months ended June 30, 2022, interest expense increased $27 million and $41 million, as compared to the same period in 2021. The increase in interest expense was primarily driven by a higher debt balance, partially offset by lower interest rates.
During the three and six months ended June 30, 2022, the successor recorded income tax expense of $69 million and $99 million on pre-tax income of $170 million and $265 million, respectively. During the four months ended April 30, 2021, the Predecessor recorded an income tax benefit of $136 million on pre-tax income of $4,405 million. During the two months ended June 30, 2021, the successor recorded income tax expense of $43 million on pre-tax income
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
of $142 million. Our effective tax rates for the three and six months ended June 30, 2022 were 40.6% and 37.4%, respectively. The effective rate increased as a result of increases to the state rate due to valuation allowances in certain states, arising from non-deductible interest expense primarily related to our $1.2 billion first lien note issuance. Our effective tax rates for the four months ended April 30, 2021 and the two months ended June 30, 2021 were (3.1%) and 30.3%, respectively.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
(b) Liquidity and Capital Resources
As of June 30, 2022, we had liquidity of approximately $3,745 million, comprised of cash and cash equivalents of $678 million, short-term investments consisting of $2,300 million of term deposits earning interest in excess of traditional bank deposit rates, and placed with banks with A-1/P-1 or equivalent credit quality, and undrawn revolving credit facility of $767 million.
Analysis of Cash Flows
As of June 30, 2022, we had unrestricted cash and cash equivalents aggregating $678 million. For the six months ended June 30, 2022, we used cash flow from operations, cash on hand, and cash from prior year borrowings principally to fund our cash investing and financing activities, which were primarily short-term investments and capital expenditures.
On May 12, 2022, our consolidated subsidiary Frontier Communications Holdings, LLC (“Frontier Holdings”), issued $1.2 billion aggregate principal amount of 8.750% first lien secured notes due 2030 in an offering pursuant to exemptions from the registration requirements of the Securities Act. We intend to use the net proceeds of this offering to fund capital investments and operating costs arising from our fiber build and expansion of its fiber customer base, and for other general corporate purposes.
As of June 30, 2022, we had a working capital surplus of $1,723 million compared to a $1,237 million surplus at December 31, 2021. The primary driver for the change in the working capital surplus at June 30, 2022 was an increase in short-term investments, accounts payable and accrued interest.
Cash Flows from Operating Activities
Cash flows provided from operating activities increased $1,031 million to $757 million for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The overall increase in operating cash flows was primarily the result of changes in working capital.
We paid $9 million in net cash taxes during the six months ended June 30, 2022 and $33 million in Non-GAAP combined net cash taxes during the Non-GAAP combined six months ended June 30, 2021.
Cash Flows from Investing Activities
Cash flows used in investing activities were $3,385 million for the six months ended June 30, 2022, compared to Non-GAAP combined cash flows used in investing activities of $759 million for the corresponding period in 2021. Given the long-term nature of our fiber build, as of June 30, 2022, we have invested $2,300 million cash in short-term investments to improve interest income, while preserving funding flexibility.
Capital Expenditures
For the six months ended June 30, 2022 and 2021, our capital expenditures were $1,088 million and $769 million, respectively. Approximately 58% of our capital expenditures in the second quarter of 2022 related to fiber network projects. The driver for the increase in capital expenditure was increased spending for fiber upgrades to our existing copper network, a trend that we expect to continue as we execute our strategy of investing in our fiber network. In addition to the capital expenditures noted above, we had a balance of $250 million in “Accounts payable” on our consolidated balance sheet related to capital expenditures that had not been paid as of June 30, 2022.
Cash Flows from Financing Activities
Cash flows used by financing activities increased $968 million to $1,158 million for the six months ended June 30, 2022 as compared to the Non-GAAP combined corresponding period in 2021. The increase in financing activities were primarily driven by $1,200 million proceeds from long-term debt borrowings partially offset by financing costs,
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
lease obligations payments, long-term debt principal payments and other costs.
Our primary anticipated uses of liquidity are to fund the costs of operations, working capital and capital expenditures and to fund interest payments on our long-term debt. Our primary sources of liquidity are cash flows from operations, cash on hand and borrowing capacity under our $900 million Revolving Facility (as reduced by $133 million of Letters of Credit.)
On May 12, 2022, Frontier Holdings entered into an amendment to its Revolving Facility which, among other things, increased the Revolving Facility by an additional $275 million, to a total of $900 million in aggregate principal amount of revolving credit commitments. Our Amended and Restated Credit Agreement, including our $1,456 million Term Loan Facility and $900 million Revolving Facility, and the indentures governing our outstanding secured First Lien Notes and Second Lien Notes are described in detail in Note 8 to the financial statements contained in Part I of this report.
During the six months ended June 30, 2022, we paid $198 million of cash interest. Our long-term debt is described in detail in Note 8 to the financial statements contained in Part I of this report.
We have assessed our current and expected funding requirements and our current and expected sources of liquidity, and have determined, based on our forecasted financial results and financial condition as of June 30, 2022, that our operating cash flows and existing cash balances, will be adequate to finance our working capital requirements, fund capital expenditures, make required debt interest and principal payments, pay taxes and make other payments. A number of factors, including but not limited to, losses of customers, pricing pressure from increased competition, lower subsidy and switched access revenues, and the impact of economic conditions may negatively affect our cash generated from operations.
Net Operating Losses
In connection with the Company’s emergence from bankruptcy, we consummated a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company. Certain of the NOLs were utilized in offsetting gains from the disposition, certain of the NOLS were extinguished as part of attribute reduction and certain subsidiary NOLS were carried over. Under Section 338(h)(10) of the Code, Predecessor and Successor made elections to step-up tax basis of certain subsidiary assets. Such Section 338(h)(10) elections will generate depreciation and amortization expense going forward, which may result in net operating losses on a go forward basis. Such net operating losses would be carried forward indefinitely but would be subject to an 80% limitation on U.S. taxable income.
Contractual Obligations
Other than as disclosed elsewhere in this report with respect to the filing of the Chapter 11 Cases, the acceleration of substantially all of our debt, and the application of fresh start accounting, there have been no material changes outside the ordinary course of business to the information provided with respect to our contractual obligations, including indebtedness and purchase and lease obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Future Commitments
Frontier participated in the FCC’s CAF Phase II program, which was intended to provide long-term support for broadband in high-cost unserved or underserved areas. We accepted the FCC’s CAF Phase II offer in 25 states, which provided $313 million in annual support through 2021, to make available 10 Mbps downstream/1 Mbps upstream broadband service to households across some of the 25 states where we operate.
The deployment deadline for CAF Phase II was December 31, 2021, and final review and audit of households is not complete. To the extent it is determined we did not enable the required number of households with 10 Mbps downstream/1 Mbps upstream broadband service or we were unable to satisfy other FCC CAF Phase II requirements, Frontier will be required to return a portion of the funds previously received and may be subject to certain other requirements and obligations. We have accrued an amount for any potential shortfall in the household build commitment 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.
On January 30, 2020, the FCC adopted an order establishing RDOF, a competitive reverse auction to provide support to serve high cost areas. The FCC announced the results of its RDOF Phase I auction on December 7, 2020. Frontier was awarded approximately $371 million over ten years to build gigabit-capable broadband over a fiber-to-the-premises network to approximately 127,000 locations in eight states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). The FCC approved Frontier’s Long Form application in March 2022 and Frontier began receiving funding in the second quarter of 2022. Frontier will be required to complete the buildout to these locations by December 31, 2028, with interim target milestones over this period.
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 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, 2021.
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.
Connect America Fund (“CAF”)/ Rural Digital Opportunity Fund (“RDOF”): In 2015, Frontier accepted the FCC’s CAF Phase II offer in 29 states, which provided $332 million in annual support and in return the Company is committed to make broadband with at least 10 Mbps downstream/1 Mbps upstream speeds available to approximately 774,000 high-cost unserved or underserved locations within its footprint. This amount included approximately 41,000 locations and $19 million in annual support related to the four states of the Northwest Operations, which were disposed on May 1, 2020. The deployment deadline for the CAF phase II program was December 31, 2021 and funding ended on that date. Thereafter, the FCC has initiated a review of carriers’ CAF II program completion data, and if the FCC determines that the Company did not satisfy certain applicable CAF Phase II requirements, Frontier could be required to return a portion of the funds previously received and may be subject to certain other requirements and obligations.
On January 30, 2020, the FCC adopted an order establishing RDOF, a competitive reverse auction to provide support to serve high cost areas. The FCC announced the results of its RDOF Phase I auction on December 7, 2020. Frontier was awarded approximately $371 million over ten years to build gigabit-capable broadband over a fiber-to-the-premises network to approximately 127,000 locations in eight states (California, Connecticut, Florida,
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Illinois, New York, Pennsylvania, Texas, and West Virginia). The FCC approved Frontier’s Long Form application in March 2022 and Frontier began receiving funding in the second quarter of 2022. Frontier will be required to complete the buildout to these locations by December 31, 2028, with interim target milestones over this period.
As part of its RDOF order, the FCC indicated it would hold a follow-on auction for the unawarded funding following the Phase I auction. However, it remains uncertain whether any such follow-on auction will occur given the recent passage of significant federal funding for broadband infrastructure funding.
COVID-19 Initiatives: The Federal government has undertaken several measures to address the ongoing impacts of the COVID-19 pandemic and to facilitate enhanced access to high speed broadband, including through several new funding programs. As these large amounts of federal funding flow through the broadband ecosystem, we will evaluate and pursue funding opportunities that make sense for our business. Because of the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain and rapidly changing, the impact of the crisis and the governmental responses to the crisis on our business in 2022 and beyond remains uncertain and difficult to predict.
Current and Potential Internet Regulatory Obligations: 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 a state’s ability to pass their own network neutrality rules and remanded back to the FCC other parts of the 2018 Order. California’s network neutrality provisions have gone into effect. It is unclear whether pending or future appeals will have any impact on the regulatory structure, and it is unclear what impact future federal and/or state legislative or regulatory actions will have on net neutrality issues.
Privacy: Privacy-related legislation has been considered in a number of states. Legislative and regulatory action could result in increased costs of compliance, claims against broadband Internet access service providers and others, and increased uncertainty in the value and availability of data. On June 28, 2018, the state of California enacted comprehensive privacy legislation that, effective as of January 1, 2020, gives California consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives consumers the right to opt-out of the sale of personal information. The law applies the same rules to all companies that collect consumer information. On May 10, 2022, the state of Connecticut enacted privacy legislation that became effective on July 1, 2022. Frontier's privacy protections are consistent with this new legislation.
Video Programming: Federal, state, and local governments extensively regulate the video services industry. Our linear video services are subject to, among other things: subscriber privacy regulations; requirements that we carry a local broadcast station or obtain consent to carry a local or distant broadcast station; rules for franchise renewals and transfers; the manner in which program packages are marketed to subscribers; and program access requirements.
We provide video programming in some of our markets including California, Connecticut, Florida, Indiana, and Texas pursuant to franchises, permits and similar authorizations issued by state and local franchising authorities. Most franchises are subject to termination proceedings in the event of a material breach or expire in the ordinary course. In addition, most franchises require payment of a franchise fee as a requirement to the granting of authority.
Many franchises establish comprehensive facilities and service requirements, as well as specific customer service standards and monetary penalties for non-compliance. In many cases, franchises are terminable if the franchisee fails to comply with material provisions set forth in the franchise agreement governing system operations. We believe that we are in compliance and meeting all material standards and requirements. Franchises are generally granted for fixed terms and must be periodically renewed. Local franchising authorities may resist granting a renewal if either past performance or the prospective operating proposal is considered inadequate.
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
Our agreement with Verizon for use of the FiOS brand and trademark in markets acquired from them expired on March 31, 2021 and was not renewed or extended. Frontier rebranded our related data and video services as Frontier FiberOptic Internet and Frontier TV, respectively.
Environmental Regulation: The local exchange carrier subsidiaries we operate are subject to federal, state, and local laws, and regulations governing the use, storage, disposal of, and exposure to hazardous materials, the release of pollutants into the environment and the remediation of contamination. As an owner and former owner of property, we are subject to environmental laws that could impose liability for the entire cost of cleanup at contaminated sites, including sites formerly owned by us, regardless of fault or the lawfulness of the activity that resulted in contamination. We believe that our operations are in substantial compliance with applicable environmental laws and regulations.
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:
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 June 30, 2022, 84% of our total debt had fixed interest rates. We had no interest rate swap agreements in effect at June 30, 2022. 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, only our $1.456 billion term loan facility has a floating interest rate at June 30, 2022. The annual impact of a 100 basis point change in LIBOR would result in approximately $15 million of additional interest expense, provided that the LIBOR rate exceeds the LIBOR floor. An adverse change in interest rates would increase the amount that we pay on our variable rate obligations and could result in fluctuations in the fair value of our fixed rate obligations. Interest income from cash invested in term deposits offsets the impact of higher interest expense from floating rate debt. 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.
Our discount rate assumption for our pension benefit obligation is determined at least annually, or whenever required, with assistance from our actuaries based on the pattern of expected future benefit payments and the prevailing rates available on long-term, high quality corporate bonds with durations approximate to that of our benefit obligation. As of June 30, 2022, our discount rate utilized in calculating our benefit plan obligation continues to reflect the December 31, 2021 discount rate of 2.90%.
Our discount rate assumption for our OPEB obligation is determined in a similar manner to the pension plan. As of December 31, 2021, the discount rate was 3.00%. The discount rate was updated in connection with the remeasurements in February and May of 2022. As of June 30, 2022, our discount rate utilized for purposes of calculating our OPEB plan obligation reflects the May 31, 2022 discount rate of 4.50%.
At June 30, 2022, the fair value of our debt was estimated to be approximately $8.0 billion, based on quoted market prices, our overall weighted average borrowing rate was 6.163% and our overall weighted average maturity was
PART I. FINANCIAL INFORMATION (Continued)
(Unaudited)
approximately seven years. Refer to Note 8 for discussion of the impact of the Chapter 11 Cases on our debt obligations.
Our exposure to market risks for changes in equity security prices as of June 30, 2022 is primarily limited to our pension plan assets. We have no other security investments of any significant amount.
The value of our pension plan assets decreased $545 million from $2,655 million at December 31, 2021 to $2,110 million at June 30, 2022. This decrease primarily resulted from changes in the market value of investments of $506 million including plan expenses, benefit payments to participants of $113 million, partially offset by contributions of $74 million. While there is a significant reduction in the assets of the pension plan, the related liability is also expected to decrease due to increases in the related discount rate.
While there is a significant reduction in the assets of the pension plan, discount rates have also risen by approximately 190 basis points to about 4.80%, as of June 30, 2022. If these discount rates remain in effect through the end of 2022 our projected benefit obligation would decrease by about $650 million. On the funding side, a sustained pension asset loss could result in a reduced funding percentage and an increased minimum contribution for the 2023 plan year.
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, March 31, 2022, that our disclosure controls and procedures were 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
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in an evaluation thereof that occurred during the first six months of 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
On April 30, 2018, an amended consolidated class action complaint was filed in the United States District Court for the District of Connecticut on behalf of certain purported stockholders against Frontier, certain of its current and former directors and officers and the underwriters of certain Frontier securities offerings and in connection with certain disclosures relating to the acquisition of properties in California, Texas and Florida from Verizon on April 1, 2016 (“CTF transaction”). The complaint was brought on behalf of all persons who (1) acquired Frontier common stock between February 6, 2015 and February 28, 2018, inclusive, and/or (2) acquired Frontier common stock or Mandatory Convertible Preferred Stock. On March 8, 2019, the District Court granted in its entirety Frontier’s motion to dismiss the complaint and on March 24, 2020, the court denied plaintiffs’ motion for leave to amend. Plaintiffs appealed and prior to oral argument, the parties reached an agreement in principle to resolve the matter. The settlement, which has preliminary court approval, will be covered by insurance and will have no material financial impact on the Company.
On May 19, 2021, the FTC, joined by the attorneys general of Arizona, Indiana, Michigan, North Carolina, and Wisconsin, and two California District Attorneys, filed a complaint against Frontier in the Federal District Court for the Central District of California alleging that Frontier violated federal and state laws by knowingly misrepresenting in its advertisements the Internet speeds it was capable of delivering to DSL customers. On October 4, 2021, the court granted in part and denied in part Frontier’s motion dismiss by dismissing the non-California state claims, but permitting the FTC’s and California’s claims to proceed in the litigation. Frontier expressly denies any wrongdoing but, in the interest of resolving the matter, entered into a settlement with the FTC and California, which required Frontier to make a financial payment of approximately $9 million in costs and civil penalties, along with certain modifications to its DSL advertising and other practices. An accrual was established as of March 31, 2022 for the financial impact of this settlement, which is not material to these financial statements. The settlement was approved by the court and the financial payment was made in the second quarter of 2022.
On July 27, 2022, the Connecticut Public Utility Regulatory Authority (“PURA”) issued a Notice of Violation and Assessment of Civil Penalty Order to Cease and Desist (“NOV”) related to the underground excavation and placement of fiber facilities by Frontier and its contractors in Connecticut. The NOV alleges that Frontier and its contractors failed to comply with certain state excavation regulations which created public safety and compliance issues. The NOV prescribes a $5 million fine, which the Company will challenge in a contested proceeding. The NOV also orders Frontier to discontinue certain underground fiber deployment work until the Company submits a compliance plan to ensure compliance with the applicable regulations. Frontier is complying with the NOV and will seek relief from the underground fiber deployment restrictions. On August 1, 2022, the PURA responded to a Frontier motion, clarifying the restrictions and allowing certain underground construction activity to continue. While the Company does not believe that this matter will have a material impact on its fiber build or financial position, results of operations or cash flows, a prolonged ban on underground installations in Connecticut could adversely impact the Company’s ability to meet its build targets in a timely manner.
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, copyright 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.
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 year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
PART II. OTHER INFORMATION
PART II. OTHER INFORMATION
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(a) | Exhibits:
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| Indenture, dated as of May 12, 2022, by and among Frontier Communications Holdings, LLC, the guarantors party thereto, the collateral grantor party thereto. Wilmington Trust, National Association, as trustee, and JPMorgan Chase Bank, N.A., as collateral agent (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on May 16, 2022). | |||||||
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| Form of 8.750% First Lien Secured Notes due 2030 (included in Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on May 16, 2022). | |||||||
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| Amendment No. 2 to Amended and Restated Credit Agreement, dated as of May 12, 2022, by and among Frontier Communications Holdings, LLC, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, Goldman Sachs Bank USA, as revolver agent, and the lenders party thereto (filed as Exhibit 10.1 to Frontier’s Current Report on Form 8-K filed on May 12, 2022). | |||||||
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| Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | |||||||
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| Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | |||||||
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| 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 |
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| The following materials from Frontier’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (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. | ||||||
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| Cover Page from Frontier’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in iXBRL and contained in Exhibit 101.
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PART II. OTHER INFORMATION
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.
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| FRONTIER COMMUNICATIONS PARENT, INC. |
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| By: /s/ William McGloin |
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| Chief Accounting Officer and Controller |
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Date: August 5, 2022 |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
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| 3/31/32 | ||||
| 12/31/28 | ||||
| 4/1/27 | ||||
| 4/1/26 | ||||
| 12/31/25 | ||||
| 4/30/25 | ||||
| 12/31/22 | ||||
| 11/15/22 | ||||
| Filed on: | 8/5/22 | 8-K | ||
| 8/1/22 | ||||
| 7/27/22 | ||||
| 7/15/22 | ||||
| 7/1/22 | ||||
| For Period end: | 6/30/22 | |||
| 5/31/22 | 4 | |||
| 5/16/22 | 8-K | |||
| 5/12/22 | 8-K | |||
| 5/10/22 | ||||
| 4/30/22 | 4 | |||
| 3/31/22 | 10-Q | |||
| 2/22/22 | ||||
| 1/1/22 | ||||
| 12/31/21 | 10-K, 11-K | |||
| 12/15/21 | ||||
| 10/4/21 | 3, 8-K | |||
| 6/30/21 | 10-Q, 3, 8-K | |||
| 5/19/21 | ||||
| 4/30/21 | 10-Q, 15-12B, 3, 4, 8-K, 8-K12G3, POS AM, S-8 POS | |||
| 3/31/21 | 10-Q | |||
| 1/1/21 | ||||
| 12/31/20 | 10-K, 10-K/A, 11-K | |||
| 12/7/20 | 8-K | |||
| 5/1/20 | 8-K | |||
| 4/14/20 | 8-K | |||
| 3/24/20 | ||||
| 1/30/20 | ||||
| 1/1/20 | ||||
| 10/1/19 | ||||
| 3/8/19 | ||||
| 6/28/18 | ||||
| 4/30/18 | ||||
| 2/28/18 | 10-K | |||
| 2/27/17 | 4, 8-K | |||
| 4/1/16 | 8-K | |||
| 2/6/15 | 8-K, SC 13G/A | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 10/14/21 Frontier Comms Parent, Inc. 8-K:1,2,9 10/13/21 12:3.7M Broadridge Fin’l So… Inc |