UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



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

For the fiscal year ended December 31, 2016

or



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

For the transition period from _________ to ___________



Commission file number 001-11001





FRONTIER COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)



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



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



Securities registered pursuant to Section 12(g) of the Act:  NONE



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  X     No __



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes     No  X



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         Yes  X     No __



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).           Yes  X     No __



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐



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



    Large Accelerated Filer  ☒       Accelerated Filer  ☐        Non-Accelerated Filer  ☐       Smaller Reporting Company ☐



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes   No X 



The aggregate market value of common stock held by non-affiliates of the registrant on June 30, 2016 was $5,764,318,000 based on the closing price of $4.94 per share on such date. The number of shares outstanding of the registrant's common stock as of February 10, 2017 was 1,172,525,000.



DOCUMENT INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Frontier’s 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. 

 

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TABLE OF CONTENTS



 

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PART I



Item 1.   Business



Frontier Communications Corporation (Frontier) is a provider of communications services in the United States, with approximately 5.4 million customers, 4.3 million broadband subscribers and 28,300 employees, operating in 29 states. In recent years, Frontier has completed multiple acquisitions.  On April 1, 2016, we acquired the wireline operations of Verizon Communications, Inc. in California, Texas and Florida for a purchase price of $10,540 million in cash and assumed debt.



Frontier’s Service Territories



How We Serve Our Customers



We conduct business with both residential and business customers.



Residential. We provide broadband, video, voice and other services and products to our residential customers.  We deliver these services generally over a combination of fiber and copper based networks.



Business (commercial customers and wholesale carrier customers).   



Commercial.  We sometimes refer to our commercial customers as SME (small business, medium business and larger enterprise) customers.  We provide a broad range of services to our SME customers, including broadband service, Ethernet service, traditional circuit-based services (TDM services) and voice services.  We also sell customer premise equipment (CPE) and provide CPE-related maintenance services.  









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Carrier.  Carrier customers are often referred to as wholesale customers and include national operators such as AT&T and Verizon, Local Exchange Companies that need to access locations within Frontier’s footprint, Competitive Local Exchange Companies (CLECs) and wireless carriers.  Carrier customers buy both voice and data services. 



Services and Products



We offer a broad portfolio of communications services for residential and business customers.  These services are offered on either a standalone basis or in a bundled package, depending on each customer’s needs. 



Data and Internet services.  We offer a comprehensive range of broadband services. The principal residential service we provide is broadband internet service. Commercial services include Ethernet, Dedicated Internet, Multiprotocol Label Switching (MPLS), Time Division Multiplexing (TDM) data transport services and optical transport services. These services are all supported by 24/7 technical support and an advanced network operations center. We also offer wireless broadband services (using unlicensed spectrum) in select markets utilizing networks that we own or operate.  In addition, we offer our Frontier Secure suite of products, including computer security, cloud backup and sharing, identity protection and equipment insurance.



Video services.  We offer video services under the Vantage brand to certain of our customers in portions of Connecticut, South Carolina, Minnesota, and Illinois and under the FiOS® brand in portions of California, Texas, Florida, Indiana, Oregon and Washington. We also offer satellite TV video service to our customers under an agency relationship with DISH® in all of our markets.



Voice services. We provide voice services, including data-based VoIP, long distance and voice messaging services, to residential and business customers in our markets.  These services are billed monthly in advance. Long distance service to and from points outside our operating properties are provided by interconnection with the facilities of interexchange carriers.  Our long distance services are billed in advance for unlimited use service and on a per minute-of-use basis for a fixed number of minutes.



We also offer packages of communications services.  These packages permit customers to bundle their products and services, including voice service, video and Internet services, and other product offerings.

Access services.  We offer a range of access services.  Our switched access services allow other carriers to use our facilities to originate and terminate their local and long distance voice traffic. These services are generally offered on a month-to-month basis and the service is billed primarily on a minutes-of-use basis. Switched access charges have been based on access rates filed with the FCC for interstate services and with the respective state regulatory agency for intrastate services.  Intercarrier compensation reform has impacted the rates that we may charge for these services. See, “Regulatory Environment” below.  Other access services we offer, such as special access, allow other carriers to have a continuous, non-switched connection to customers within our service territory.        

Customer Premise Equipment.  We offer our SME customers third-party communications equipment tailored to their specific business needs by partnering with Mitel, Airbus, Avaya, Hewlett Packard, Adtran and other equipment manufacturers. CPE is typically sold in conjunction with voice, data and Internet services, and may also be sold on a standalone basis. 



Frontier Operating Strategies



Grow Broadband and Invest in our Network.  A main component of our strategy is to enable and strengthen the broadband capabilities of our network.  We focus on broadband as the core growth component of our service offering, either bundled with our voice and/or video services, or on a standalone basis.  We continuously improve our broadband speeds and availability in our markets and view these investments as opportunities to attract and retain a greater number of customers and increase average revenue per residential and business customer.  Our capital expenditures include enhancing the existing outside plant by expanding fiber-based infrastructure throughout our network, upgrading network hardware, expanding transport capacity of our middle-mile and data backbone, and growing our video capabilities.  We continue to deploy next generation Broadband Remote Access Servers throughout our network to facilitate the expansion of broadband and video service offerings and increase broadband speeds. Similarly, for our commercial customers we are focused on expanding and upgrading our premium Ethernet service offerings across our network.

 

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Improve Customer Experience and Retention. We provide multiple service and product options in our residential and business offerings to the customer base in each of our markets. We believe this strategy results in a better customer experience and allows us to maximize retention of existing customers and to attract new customers. At December 31, 2016, 63% of our residential broadband customers subscribed to at least one other service offering. Our bundled services include broadband, voice, and video offerings, including simplified messaging services, higher speed products and digital security products.  In late 2016, we announced a new organization structure, including separate and specialized consumer and commercial operations which will focus on the differing needs of these customer groups.



Improve Productivity and Operational Efficiency.  We continuously engage in productivity initiatives with a focus on simplifying our processes, eliminating redundancies and further reducing our cost structure while improving our customer service capabilities.  We have achieved significant day one cost savings in the wireline acquisition in California, Texas and Florida in 2016.  There are substantial operational cost take-out opportunities that we are aggressively pursuing across all of our properties.



Network Architecture and Technology



Our local exchange carrier networks consist of host central office and remote sites, primarily equipped with digital and Internet Protocol switches.  The outside plant consists of transport and distribution delivery networks connecting our host central office with remote central offices and ultimately with our customers.  We own fiber optic and copper cable, which have been deployed in our networks and are the primary transport technologies between our host and remote central offices and interconnection points with other incumbent carriers. 



We have expanded and enhanced our fiber optic and copper transport systems to support increasing customer demand for high bandwidth transport services. We routinely enhance our network and upgraded with the latest Internet Protocol Transport and routing equipment, Reconfigurable Optical Add/Drop Multiplexers (ROADM) transport systems, Very High Bit-Rate Digital Subscriber Line  (VDSL) broadband equipment, and VoIP switches.  These systems will support advanced services such as Ethernet, Dedicated Internet, Multiprotocol Label Switching (MPLS) transport, and VoIP.  The network is designed with redundancy and auto-failover capability on our major circuits.



We connect to the households and business locations in our service territory using a combination of fiber optic and copper technologies.  In some cases we provide direct fiber into a residence or a business premises.  In other cases a location is served with a hybrid combination of fiber and copper.  Residences in our service territory are served by fiber-to-the-home (FTTH) and by fiber-to-the-node (FTTN), meaning fiber carries the traffic to an intermediate location where the signals are converted to copper wire for the final delivery to the household.  We provide data, video, and voice services to the customer over both of these architectures. 



As of December 31, 2016, our broadband availability to the households throughout Frontier’s territories is as follows:



In certain markets, we have begun to offer residential broadband services with 1 gigabit download speed capabilities.



Rapid and significant changes in technology are occurring in the communications industry.  Our success will depend, in part, on our ability to anticipate and adapt to technological changes. We believe that our existing network

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architecture strategy will enable us to respond to these ongoing technological changes efficiently. In addition, we anticipate reducing costs through the sharing of best practices across operations, centralization or standardization of functions and processes, and deployment of technologies and systems that provide for greater efficiencies and profitability. We will continue to make strategic enhancements to our network, with a focus on higher return investments.



Competitive Positioning



Competition for residential customers comes from cable operators, wireless carriers and online video providers, among others. 









Many residential customers prefer to bundle their voice, data and Internet and video services with a single provider.  In areas where we do not directly offer a network based video service, we offer satellite TV video service through DISH.  This can impact acquisition of new customers and retention of existing customers, representing a critical factor for the attachment of video, broadband and voice products. As of December 31, 2016 34% of our residential customers subscribed to at least two service offerings, and 19%  subscribed to at least three service offerings.



Competition for business customers comes from telecommunications providers, cable operators, CLECs and other enterprises, some of which are substantially larger than us.  As compared to our residential customers, these customers often require more sophisticated and more data-centered solutions (e.g., IP PBX, E911 networks, Ethernet, SIP trunking).



In order to remain competitive, we must continue to evolve our product offerings to remain current with the changing needs of the market, to provide strong customer service and support, to invest in our network so we maintain adequate capacity and can deliver new capabilities as needed, and to package our offerings to make them attractive to customers.



Regulatory Environment 



Some of our operations are subject to regulation by the FCC and various state regulatory agencies, often called public service or utility commissions. We expect federal and state lawmakers, the FCC and the state regulatory agencies to continue to revise the statutes and regulations governing communications services.

Regulation of our business

We are subject to federal, state and local regulation and we have various regulatory authorizations for our regulated service offerings.  At the federal level, the FCC generally exercises jurisdiction over information services, interstate or international telecommunications services and over facilities to the extent they are used to provide, originate or terminate interstate or international services.  State regulatory commissions generally exercise jurisdiction over intrastate telecommunications services and the facilities used to provide, originate or terminate those services.  Most of our local exchange companies operate as incumbent carriers in the states in which they operate and are certified in those states to provide local telecommunications services.  In addition, local governments often regulate the public rights-of-way necessary to install and operate networks, and may require service providers to obtain licenses or franchises regulating their use of public rights-of-way. Municipalities and other local government agencies also may regulate other limited aspects of our business, by requiring us to obtain cable franchises and construction permits and to abide by applicable building codes.

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Some states regulatory agencies have substantial oversight over incumbent telephone companies, and their interconnection with competitive providers and provision of non-discriminatory network access to certain network elements to them.  Under the Federal Telecommunications Act of 1996, state regulatory commissions have jurisdiction to arbitrate and review interconnection disputes and agreements between incumbent telephone companies and competitive local exchange carriers, in accordance with rules set by the FCC.  The FCC and state regulatory commissions also impose fees on providers of telecommunications services to support state universal service programs.  Many of the states in which we operate require prior approvals or notifications for certain acquisitions and transfers of assets, customers, or ownership of regulated entities.



In addition, in some states we are subject to operating restrictions and minimum service quality standards (the failure to meet such restrictions may result in penalties).  We also are required to report certain financial information.  At the federal level and in a number of the states in which we operate, we are subject to price cap or incentive regulation plans under which prices for regulated services are capped.  Some of these plans have limited terms and, as they expire, we may need to renegotiate with various states.  These negotiations could impact rates, service quality and/or infrastructure requirements, which could also impact our earnings and capital expenditures.  In other states in which we operate, we are subject to rate of return regulation that limits levels of earnings and returns on investments.  Approximately 19% of our total access lines at December 31, 2016 are in state jurisdictions under the rate of return regulatory model.  We will continue to advocate for no or reduced regulation with various regulatory agencies in those states.  In some of our states, we have already been successful in reducing or eliminating price regulation on end-user services.



Federal Regulatory Environment    



Frontier, along with all telecommunications providers, is subject to FCC rules governing privacy of specified customer information. Among other things, these rules obligate carriers to implement procedures to: protect specified customer information from inappropriate disclosure; obtain customer permission to use specified information in marketing; authenticate customers before disclosing account information; and annually certify compliance with the FCC’s rules. Although most of these regulations are generally consistent with our business plans, they may restrict our flexibility in operating our business. 



Some regulations are, or could in the future be, the subject of judicial proceedings, legislative hearings and administrative proposals or challenges that could change the manner in which the entire industry operates.  Neither the outcome of any of these developments, nor their potential impact on us, can be predicted at this time. Regulation can change rapidly in the communications industry, and such changes may have an adverse effect on us.



The current status of material regulatory initiatives is as follows:



Federal High-Cost Subsidies: The FCC has adopted rules changing the eligibility requirements for federal subsidies offered to wireline carriers providing service to high-cost, low-density markets, as well as the amounts of such subsidies, as follows:



Connect America Fund (CAF):  On November 18, 2011, the FCC adopted the Universal Service Fund (USF)/Intercarrier Compensation (ICC) Report and Order (the 2011 Order), which changed how federal subsidies are calculated and disbursed, and began the transition of Federal USF (Universal Service Fund), which supported voice services in high-cost areas, to the CAF, which supports broadband deployment in high-cost areas.  Frontier received $133 million from 2012 through 2014 across two rounds of CAF Phase I funding to make broadband available to approximately 194,600 previously unserved or underserved households. We completed deployment of broadband service to the first round of CAF Phase I households in 2015 as required by the FCC rules and will complete the second round of CAF Phase I build by the March 2017 deadline.  



On April 29, 2015, the FCC released offers of support to price cap carriers under the CAF Phase II program.  The intent of these offers is to provide long-term support for carriers for establishing and providing broadband service with at least 10 Mbps downstream/1 Mbps upstream speeds in high cost unserved or underserved areas. Frontier accepted the CAF Phase II offer in 29 states, including our CTF properties, which provides for $332 million in annual support, through 2020 and a commitment to make broadband available to approximately 774,000 households.  CAF Phase II support is a successor to the approximately $156 million in annual USF frozen high cost support that Frontier had been receiving prior to the CTF acquisition, and the $42 million in annual transitional USF frozen high cost support that Verizon had been receiving in California and Texas.  In addition to the annual support levels, these amounts also include frozen support phasedown amounts in states where the annual CAF II funding is

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less than the prior annual frozen high cost support funding.  The frozen support phasedown support was $35 million in 2015 and $27 million in 2016, and is expected to be $17 million in 2017 and $6 million in 2018.



In 2017, the FCC is expected to adopt a competitive bidding process to continue to distribute CAF Phase II funding in those high-cost areas where price cap carriers declined the FCC’s offer of support, possibly presenting a new support and deployment opportunity.  The FCC’s competitive bidding process has not yet been finalized, therefore, Frontier is unable to determine whether it will participate in any competitive bid process at this time.



Intercarrier Compensation: In the 2011 Order, the FCC also reformed Intercarrier Compensation, which is the payment framework that governs how carriers compensate each other for the exchange of interstate switched traffic, and began a multi-year transition to the new rates. The 2011 Order provided for the gradual elimination of terminating traffic charges by July 2017 with a related decline in operating expenses. Switched access revenue declined sequentially in the third quarter of 2016, reflecting the rate reductions mandated by the 2011 Order, and we anticipate that we have experienced nearly all of the rate decline related to the 2011 Order. Frontier has been able to recover a significant portion of those lost revenues through end user rates and other replacement support mechanisms, a trend we expect will continue through 2017 and beyond.  There are no longer any active Intercarrier Compensation-related challenges to the 2011 Order, and we believe that the 2011 Order provides a stable regulatory framework to facilitate our ongoing focus on the deployment of broadband into our rural markets.



Special Access: The FCC also has an ongoing proceeding, which dates back to 2015, to consider whether to make changes to its regulatory regime governing special access services, including whether to mandate lower rates, change standards for deregulation and pricing flexibility, or to require changes to other terms and conditions.  In connection with its inquiry into specifically identified special access tariff pricing plans discussed below, on April 28, 2016, the FCC released a Notice of Proposed Rulemaking on special access or “business data” services.  It sought comment on proposed changes to the way the FCC regulates traditional special access services based on market competition, and on a proposal to adopt pricing rules for Ethernet services in markets that are found to be “noncompetitive.”  On October 7, 2016, the FCC released a Fact Sheet detailing former FCC Chairman Wheeler’s proposal for addressing special access issues, though this proposal was never adopted.  The composition of the FCC has since changed following the Presidential election, and as a result the proceeding remains open and the potential impact to Frontier of this proceeding is unknown. 



On April 28, 2016, the FCC completed its inquiry into whether certain terms and conditions contained in specifically identified special access tariff pricing plans offered by four carriers, including Frontier, are just and reasonable. The FCC held that certain of the tariff terms for business data TDM services, specifically DS1s and DS3s, were unreasonable. Specifically, the FCC struck down “excessive” early termination fees and “all-or-nothing” provisions. Frontier has revised its tariffs in accordance with the FCC’s Order. The FCC’s decision has no retroactive effect, and there has been no material impact to Frontier from it. The FCC deferred the issue of how its ruling will affect customers currently purchasing services from these tariffs to the Notice of Proposed Rulemaking mentioned above.



Intrastate Services: Some state regulatory commissions regulate some of the rates ILECs charge for intrastate services, including rates for intrastate access services paid by providers of intrastate long distance services.  Some states also have their own open proceedings to address reform to intrastate access charges and other intercarrier compensation and state universal service funds. Although the FCC has pre-empted state jurisdiction on most access charges, some states could consider moving forward with their proceedings.  We cannot predict when or how these matters will be decided or the effect on our subsidy or switched access revenues. 



Voice Over Internet Protocol (VoIP):  Regulators at both the federal and state levels continue to address whether VoIP services are subject to the same or different regulatory and intercarrier compensation regimes as traditional voice telephony.  The FCC has concluded that VoIP and facilities-based broadband Internet access providers must comply with the Communications Assistance for Law Enforcement Act, a decision that the United States Court of Appeals for the District of Columbia Circuit has upheld.  The FCC has also required VoIP providers to provide enhanced 911 emergency calling capabilities.  In the 2011 Order, the FCC determined that VoIP-originated traffic terminating on the Public Switched Telephone Network is subject to interstate access rates. Effective December 29, 2011, the 2011 Order required providers to pay interstate access rates for the termination of VoIP toll traffic.  On April 25, 2012, the FCC, in an Order on Reconsideration, specified that changes to originating access rates for VoIP traffic would not be implemented until July 2014. The 2011 Order was challenged in court, and the FCC was petitioned to reconsider various aspects. While most challenges have been resolved, on November 18, 2016, the U.S. Court of Appeals for the D.C. Circuit remanded to the FCC AT&T’s challenge regarding the ability of competitive carriers to assess VoIP access charges.  The net impact of the 2011 Order during the period from July

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2012 through December 2014 was not significant for Frontier.  The net effect of 2011 Order changes to originating access after July 1, 2014 is dependent upon the percentage of VoIP traffic.



Additionally, the 2011 Order requires VoIP providers to pay interstate terminating interconnection charges and requires all carriers terminating traffic to provide appropriate call information, thus prohibiting so-called “phantom traffic.”  However, the FCC declined to address other VoIP-related issues, and the FCC has stated its intent to address open questions regarding the treatment of VoIP services in its ongoing “IP-Enabled Services Proceeding.” Internet telephony may have an advantage in the marketplace over our traditional services if this service remains less regulated. 



Current and potential Internet regulatory obligations:    On June 14, 2016, the United States Court of Appeals for the D.C. Circuit upheld the FCC’s 2015 Order in which the FCC asserted jurisdiction over broadband service, utilizing its jurisdictional authority under Title II and Section 706 of the Communications Act of 1996, classified broadband service as a “telecommunications service”.  The FCC adopted rules to “preserve a Free and Open Internet” (i.e., net neutrality) that impose specific obligations for fixed and mobile providers of broadband Internet access services and specifically prohibit the following: blocking access to legal content, applications, services, or non-harmful devices; impairing or degrading lawful Internet traffic on the basis of content, applications, services, or non-harmful devices; favoring some lawful Internet traffic over other lawful traffic in exchange for consideration; and otherwise unreasonably harming consumers or edge providers. These obligations are largely consistent with the practices Frontier already had in place. The FCC also announced additional transparency requirements, which allow for a “safe harbor” disclosure framework, intended to provide consumers more information about a provider’s network management practices, performance, speed, price, and data caps.



Several parties have asked the D.C. Circuit to reconsider its decision and, depending on the outcome, are likely to ask the Supreme Court to review the Order.  Frontier continues to comply with the existing regulatory requirements, and it is unclear whether the pending appeal will have any impact on the regulatory structure. 



In addition to the net neutrality rules, the FCC on October 27, 2016, relied on its newfound Title II authority to promulgate privacy rules for broadband providers.  These rules govern how broadband providers can use sensitive customer information and the steps providers must take to protect that information.  Petitions for reconsideration of these rules were due in January 2017, and whether these rules will remain in place is uncertain, particularly due to the change in administration.

 

Video programming 



Federal, state and local governments extensively regulate the video services industry.  Our FiOS and Vantage 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 in California, Connecticut, Florida, Indiana, Minnesota, North Carolina, Oregon, South Carolina, Texas and Washington 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.  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 of at least ten years 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.

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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.



Segment Information



We currently operate in only one reportable segment.



Financial Information about Foreign and Domestic Operations and Export Sales



We have no foreign operations.



General



The dollar amount of our order backlog is not a significant consideration in our business and is not a meaningful metric for us.  We have no material contracts or subcontracts that may be subject to renegotiation of profits or termination at the election of the federal government. 



Intellectual Property



We believe that we have the trademarks, trade names and intellectual property licenses that are necessary for the operation of our business.  



Employees



As of December 31, 2016, we had approximately 28,300 employees, as compared to approximately 19,200 employees as of December 31, 2015.  During 2016, reduction in workforce activities resulted in the severance of approximately 1,950 employees of which approximately 450 employees remained as employees as of December 31, 2016.  Approximately 17,900 of our total employees are represented by unions. The number of employees covered by a collective bargaining agreement that expired in 2016, but have been extended and are still effective for 2017, is approximately 600. The number of employees covered by collective bargaining agreements that expire in 2017 is approximately 3,800. We consider our relations with our employees to be good.



Available Information



We are subject to the informational requirements of the Securities Exchange Act of 1934 (the Exchange Act).  Accordingly, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC).  These reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding Frontier and other issuers that file electronically. 



We make available, free of charge on our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as practicable after we electronically file these documents with, or furnish them to, the SEC.  These documents may be accessed through our website at www.frontier.com under “Investor Relations.”  The information posted or linked on our website is not part of this report.  We also make our Annual Report available in printed form upon request at no charge.



We also make available on our website, as noted above, or in printed form upon request, free of charge, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Specific Code of Business Conduct and Ethics Provisions for Certain Officers, and the charters for the Audit, Compensation, and Nominating and Corporate Governance committees of the Board of Directors.  Stockholders may request printed copies of these materials by writing to: 401 Merritt 7, Norwalk, Connecticut 06851 Attention: Corporate Secretary. 



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Forward-Looking Statements 



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









































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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 set forth under Item 1A. “Risk Factors,” 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.

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Item 1A.  Risk Factors    



Before you make an investment decision with respect to any of our securities, you should carefully consider all the information we have included in this Annual Report on Form 10-K and our subsequent periodic filings with the SEC.  In particular, you should carefully consider the risk factors described below and the risks and uncertainties related to “Forward-Looking Statements,” any of which could materially adversely affect our business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this annual report.   The risks and uncertainties described below are not the only ones facing Frontier.  Additional risks and uncertainties that are not presently known to us or that we currently deem immaterial or that are not specific to us, such as general economic conditions, may also adversely affect our business and operations.  The following risk factors should be read in conjunction with the balance of this annual report, including the consolidated financial statements and related notes included in this report.



Risks Related to Our Business 



We will likely face further reductions in voice customers, switched access minutes of use, long distance revenues and subsidy revenues.



We have experienced declining voice customers, switched access minutes of use and related revenues, long distance revenues, federal and state subsidies and related revenues because of economic conditions, increasing competition, changing technology and consumer behavior (such as wireless displacement of wireline use, e-mail use, instant messaging and increasing use of VoIP), technology and regulatory constraints, and financial decisions by governmental authorities.  We will likely continue to experience further reductions in the future.  These factors, among others, are likely to cause our local network service, switched network access, long distance and subsidy revenues to continue to decline, and these factors may cause our cash generated by operations to decrease.



We face intense competition.



The communications industry is extremely competitive. Through mergers and various service expansion strategies, service providers are striving to provide integrated solutions both within and across geographic markets.  Our competitors include competitive local exchange carriers, Internet service providers, wireless companies, OTT, VoIP providers and cable companies, some of which may be subject to less regulation than we are; these entities may provide services competitive with the services that we offer or intend to introduce.  We also believe that wireless and cable telephony providers have increased their penetration of various services in our markets.  We expect that competition will remain robust.  Our revenue and cash flow will be adversely impacted if we cannot reverse our customer losses or continue to provide high-quality services.



We cannot predict which of the many possible future technologies, products or services will be important in order to maintain our competitive position or what expenditures will be required to develop and provide these technologies, products or services.  Our ability to compete successfully will depend on the effectiveness of capital expenditure investments in our properties, our marketing efforts, our ability to anticipate and respond to various competitive factors affecting the industry, including a changing regulatory environment that may affect our business and that of our competitors differently, new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and pricing strategies by competitors.  Increasing competition may reduce our revenues and increase our marketing and other costs as well as require us to increase our capital expenditures and thereby decrease our cash flows.



Some of our competitors have superior resources, which may place us at a cost and price disadvantage.



Some of our competitors have market presence, engineering, technical, marketing and financial capabilities, substantially greater than ours.  In addition, some of these competitors are able to raise capital at a lower cost than we are able to. Consequently, some of these competitors may be able to develop and expand their communications and network infrastructures more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily and devote greater resources to the marketing and sale of their products and services than we will be able to.  Additionally, the greater brand name recognition of some competitors may require us to price our services at lower levels in order to retain or

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obtain customers. Finally, the cost advantages and greater financial resources of some of these competitors may give them the ability to reduce their prices for an extended period of time if they so choose. Our business and results of operations may be materially adversely impacted if we are not able to effectively compete.



We may be unable to stabilize or grow our revenues and cash flows despite the initiatives we have implemented.



We must produce adequate revenues and cash flows that, when combined with cash on hand and funds available under our revolving credit facility and other financings, will be sufficient to service our debt, fund our capital expenditures, pay our taxes, fund our pension and other employee benefit obligations and pay dividends pursuant to our dividend policy.  We have experienced revenue declines in 2016 and 2015 as compared to prior years for our Frontier legacy operations, and our recently acquired operations have also experienced revenue declines. While we have identified potential areas of opportunity and implemented several revenue and cost initiatives, we cannot assure you that these efforts will be successful or that these initiatives will improve our financial position or our results of operations.



Weak economic conditions may decrease demand for our services or necessitate increased discounts.



We could be adversely impacted by weak economic conditions or their effects.  Downturns in the economy and competition in our markets could cause some of our customers to reduce or eliminate their purchases of our basic and enhanced voice services, broadband and video services and make it difficult for us to obtain new customers or retain existing customers.  In addition, if economic conditions are depressed or further deteriorate, our customers may delay or discontinue payment for our services or seek more competitive pricing from other service providers, or we may be required to offer increased discounts in order to retain our customers, which could have a material adverse effect on our business or results of operations.  



Disruption in our networks, infrastructure and information technology may cause us to lose customers and/or incur additional expenses.



To attract and retain customers, we must provide reliable service.  Some of the risks to our networks, infrastructure and information technology include physical damage, security breaches, capacity limitations, power surges or outages, software defects and other disruptions beyond our control, such as natural disasters and acts of terrorism.  From time to time in the ordinary course of business, we experience short disruptions in our service due to factors such as cable damage, theft of our equipment, inclement weather and service failures of our third-party service providers.  We could experience more significant disruptions in the future.  We could also face disruptions due to capacity limitations if changes in our customers’ usage patterns for our broadband services result in a significant increase in capacity utilization, such as through increased usage of video or peer-to-peer file sharing applications.  Disruptions may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers and/or incur additional expenses, and thereby adversely affect our business, revenues and cash flows.



Our business is sensitive to the creditworthiness of our wholesale customers.



We have substantial business relationships with other communications carriers for which we provide service.  While bankruptcies of these carriers have not had a material adverse effect on our business in recent years, future bankruptcies in the industry could result in the loss of significant customers, as well as cause more price competition and an increased allowance for doubtful accounts receivable.  Such bankruptcies may be more likely in the future if economic conditions stagnate.  As a result, our revenues and results of operations could be materially and adversely affected.



A significant portion of our workforce is represented by labor unions.



As of December 31, 2016, we had approximately 28,300 employees. Approximately 17,900 of our total employees were represented by unions and were subject to collective bargaining agreements. As of December 31, 2016, we had approximately 600 employees covered by a  collective bargaining agreement that expired in 2016, but have been extended and are still effective for 2017. Of the union-represented employees as of December 31, 2016, approximately 3,800, or 21%, of the unionized workforce are covered by collective agreements that expire in 2017 and approximately 3,500, or 20%, of the unionized workforce are covered by collective bargaining agreements that expire in 2018. 

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We cannot predict the outcome of negotiations of the collective bargaining agreements covering our employees.  If we are unable to reach new agreements or renew existing agreements, employees subject to collective bargaining agreements may engage in strikes, work slowdowns or other labor actions, which could materially disrupt our ability to provide services.  New labor agreements or the renewal of existing agreements may impose significant new costs on us, which could adversely affect our financial condition and results of operations in the future.



If we are unable to hire or retain key personnel, we may be unable to operate our business successfully.



Our success will depend in part upon the continued services of our management.  We cannot guarantee that our key personnel will not leave or compete with us.  The loss, incapacity or unavailability for any reason of key members of our management team could have a material impact on our business.  In addition, our financial results and our ability to compete will suffer if we are unable to attract, integrate or retain other qualified personnel in the future.



We may be unable to realize the anticipated benefits of recent acquisitions.



In recent years, we have completed multiple acquisitions.  We cannot assure you that we will be able to realize the full benefit of any anticipated growth opportunities or cost synergies from such acquisitions or that these benefits will be realized within the expected time frames.



We may complete a future significant strategic transaction that may not achieve intended results or could increase the number of our outstanding shares or amount of outstanding debt.



We continuously evaluate and may in the future enter into additional strategic transactions. Any such transaction could happen at any time, could be material to our business and could take any number of forms, including, for example, an acquisition, merger or a sale of certain of our assets.



Evaluating potential transactions and integrating completed ones may divert the attention of our management from ordinary operating matters.  The success of these potential transactions will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies through the successful integration of the businesses we acquire with our existing business.  Even if we are successful in integrating acquired businesses, we cannot assure you that these integrations will result in the realization of the full benefit of any anticipated growth opportunities or cost synergies or that these benefits will be realized within the expected time frames.  In addition, acquired businesses may have unanticipated liabilities or contingencies.



If we complete an acquisition, investment or other strategic transaction, we may require additional financing that could result in an increase in the number of our outstanding shares of stock or the aggregate amount and/or cost of our debt, which may result in an adverse impact to our ratings.  The number of shares of our stock or the aggregate principal amount of our debt that we may issue may be significant.  Moreover, the terms of any debt financing may be expensive or adversely impact our results of operations.



Negotiations with the providers of content for our video systems may not be successful, potentially resulting in our inability to carry certain programming channels on our FiOS and Vantage video systems, which could result in the loss of subscribers. Alternatively, because of the power of some content providers, we may be forced to pay an increasing amount for some content, resulting in higher expenses and lower profitability. 



We must negotiate with the content owners of the programming that we carry on our multichannel video systems (marketed as FiOS video and Vantage video).  These content owners are the exclusive provider of the channels they offer.  If we are unable to reach a mutually-agreed contract with a content owner, including pricing and carriage provisions, our existing agreements to carry this content may not be renewed, resulting in the blackout of these channels.  The loss of content could result in our loss of customers who place a high value on the particular content that is lost.  In addition, many content providers own multiple channels. As a result, we typically have to negotiate the pricing for multiple channels rather than one, and carry and pay for content that customers do not much value, in order to have access to other content that customers value quite highly.  Some of our competitors have materially larger scale than we do, and may, as a result, be better positioned than we are in such

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negotiations.   As a result of these factors, the expense of content acquisition may continue to increase, and this could result in higher expenses and lower profitability.     



Risks Related to Liquidity, Financial Resources and Capitalization



We expect to make contributions to our pension plan in future years, the amount of which will be impacted by volatility in asset values related to Frontier’s pension plan and/or changes in pension plan assumptions.



Frontier made contributions of $28 million and $62 million to its pension plan in 2016 and 2015, respectively, and we expect to continue to make contributions in future years.  Volatility in our asset values, liability calculations, or returns may impact the costs of maintaining our pension plan and our future funding requirements. Any future material contribution could have a negative impact on our liquidity by reducing cash flows. 

 

We currently have a significant amount of indebtedness, including secured indebtedness, and are able to incur substantial additional indebtedness and grant substantial additional liens in the future. Such debt and debt service obligations may adversely affect us.



We have a significant amount of indebtedness, which amounted to $18.2 billion outstanding at December 31, 2016, of which $2.3 billion was secured. We also have access to a $750 million secured Revolving Credit Facility, which currently is undrawn. 



The terms of our indentures and credit facilities allow us to incur substantial additional indebtedness and grant substantial additional liens in the future. In addition, these terms do not prevent us or our restricted subsidiaries from incurring various types of obligations that do not constitute “indebtedness” under these terms.  



If we incur any additional indebtedness that ranks equally with our senior notes and debentures, the holders of that new debt will be entitled to share ratably with holders of our senior notes and debentures in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of Frontier. If any such additional indebtedness is secured, it will be effectively senior to our unsecured senior notes and debentures to the extent of the collateral securing such indebtedness. This may have the effect of reducing the probability of payment, or the amount of proceeds paid, to holders of our senior notes and debentures. 



In addition, to the extent other new debt is added to our and our subsidiaries’ current debt levels, the substantial leverage risks described below would increase.



The potential significant negative consequences on our financial condition and results of operations that could result from our substantial debt include:













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In addition, our senior notes and debentures are rated below “investment grade” by independent rating agencies. This can result in higher borrowing costs for us. We cannot assure you that these rating agencies will not lower our current debt ratings, if in the rating agencies’ judgment such an action is appropriate.  A lowering of a rating may further increase our future borrowing costs and reduce our access to capital.



The indentures and agreements governing our debt, including our senior notes and debentures and our credit facilities, contain covenants that impose restrictions on us and certain of our subsidiaries that may affect our ability to operate our business, make payments on our debt, and pay dividends.



The indentures and agreements governing our existing indebtedness contain covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to:

















In addition, our credit facilities require us to comply with additional covenants, including financial ratios. Any future indebtedness may also require us to comply with similar or other covenants. These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities.



Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our existing or future financing indentures and agreements could result in a default under those documents and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed by indentures and credit agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing.



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Frontier is primarily a holding company and, as a result, we rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including our senior notes and debentures.



Frontier is primarily a holding company and its principal assets consist of the shares of capital stock or other equity instruments of its subsidiaries. As a holding company, we depend on dividends, distributions and other payments from our subsidiaries to fund our obligations, including those arising under our senior notes and debentures, and meet our cash needs. We cannot assure you that the operating results of our subsidiaries at any given time will be sufficient to make dividends, distributions or other payments to us in order to allow us to make payments on our indebtedness, including our senior notes and debentures. In addition, the payment of these dividends, distributions and other payments, as well as other transfers of assets, between our subsidiaries and from our subsidiaries to us may be subject to legal, regulatory or contractual restrictions. Some state regulators have imposed and others may consider imposing on regulated companies, including us, cash management practices that could limit the ability of such regulated companies to transfer cash between subsidiaries or to the parent company. While none of the existing state regulations materially affects our cash management, any changes to the existing regulations or imposition of new regulations or restrictions may materially adversely affect our ability to transfer cash within our consolidated companies.



Our senior notes and debentures are structurally subordinated to liabilities of our subsidiaries.



Our subsidiaries have not guaranteed our senior notes and debentures. As a result, holders of such securities will not have any claim as a creditor against our subsidiaries. Accordingly, all obligations of our subsidiaries (including any liens granted by our subsidiaries on any of their assets to secure any of our obligations) will have to be satisfied before any of the assets of such subsidiaries would be available for distribution, upon a liquidation or otherwise. Although the indentures governing our senior notes and debentures, and our credit agreements, limit the indebtedness our subsidiaries may incur, our subsidiaries are able to incur a substantial amount of additional debt.  Additionally, although the indentures and credit agreements limit the liens that may be granted on the assets of our subsidiaries, our subsidiaries are able to grant liens to secure a substantial amount of liabilities, including, without limitation, certain indebtedness under our credit facilities.



Our senior notes and debentures are unsecured and subordinated to any secured indebtedness.



Our senior notes and debentures are unsecured and therefore are subordinated to our existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness.  At December 31, 2016, our secured indebtedness consisted of obligations under the 2015 Credit Agreement, the CoBank Credit Agreements, the Revolving Credit Agreement and the Continuing Agreement for Standby Letters of Credit dated February 4, 2008 between Frontier and Deutsche Bank AG New York Branch, each of which is secured equally and ratably by a pledge of all of the outstanding shares of capital stock of Frontier North Inc., a wholly-owned subsidiary. In the event of a bankruptcy or similar proceeding, the assets that serve as collateral for our secured indebtedness will be available to satisfy the obligations under the secured indebtedness before any payments are made on the senior notes and debentures from the proceeds of such assets.  The indentures governing our senior notes and debentures permit us, subject to specified limitations, to incur a substantial amount of additional secured debt.



If the senior notes issued in September 2015 are rated investment grade by at least two of Moody’s, S&P or Fitch, many of the covenants will not apply and the holders of the notes will lose the protection of the covenants.



Each of the supplemental indentures governing our senior notes issued in September 2015 contain certain covenants that will be suspended during any period in which such series of notes are rated investment grade by at least two of Moody’s, S&P or Fitch and no default or event of default has occurred and is continuing. Such covenants limit, among other things, our ability to pay distributions, incur debt and enter into certain other transactions. There can be no assurance that any series of notes will ever be rated investment grade, or that if they are rated investment grade, that the series of notes will maintain these ratings. To the extent the covenants are subsequently reinstated, any such actions taken while the covenants were suspended would not result in an event of default under the supplemental indentures governing the applicable series of notes.



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Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.



At December 31, 2016, approximately 12% of our total debt is subject to variable rates of interest. Borrowings under our credit facilities are at variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we might not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into might not fully mitigate our interest rate risk.



We may not have sufficient funds to repurchase our senior notes upon a change of control triggering event.



The terms of our senior notes require us to make an offer to repurchase the notes upon the occurrence of a Change of Control and Ratings Decline (as defined in the indentures governing the notes) at a purchase price equal to 101% of the respective principal amounts of the notes plus accrued and unpaid interest to, but not including, the date of the purchase. It is possible that we would not have sufficient funds at the time of such a change of control triggering event to make the required repurchase of the applicable series of notes and would be required to obtain third party financing to do so. We may not be able to obtain this financing on commercially reasonable terms, or on terms acceptable to us, or at all. In addition, the occurrence of certain change of control events may constitute an event of default under the terms of our credit facilities. Such an event of default would entitle the lenders under our credit facilities to, among other things, cause all outstanding debt thereunder to become due and payable.



We cannot assure that we will be able to continue paying dividends.



The amount and timing of future dividend payments is subject to applicable law and will be made at the discretion of our Board of Directors based on factors such as cash flow and cash requirements, capital expenditure requirements, financial condition and other factors.

Our ability to declare and pay dividends on the Series A Preferred Stock may be limited.

Our declaration and payment of dividends on the Series A Preferred Stock in the future will be determined by our Board of Directors in its sole discretion and will depend on business conditions, our financial condition, earnings and liquidity and other factors. Our ability to declare and pay dividends and make other distributions with respect to our capital stock, including the Series A Preferred Stock, is restricted by the terms of certain of our existing financing arrangements and may be restricted by the terms of financing arrangements that we enter into in the future. In the event that the agreements governing any such indebtedness restrict our ability to declare and pay dividends in cash on the shares of Series A Preferred Stock, we may be unable to declare and pay dividends in cash on the shares of Series A Preferred Stock unless we can repay or refinance the amounts outstanding under such agreements.

In addition, under Delaware law, our Board of Directors may only declare and pay dividends on shares of our capital stock out of our statutory “surplus” (which is the amount equal to total assets minus total liabilities, in each case at fair market value, minus statutory capital), or if there is no such surplus, out of our net profits for the then current and/or immediately preceding fiscal year. Further, even if we are permitted under our contractual obligations and Delaware law to declare and pay cash dividends on the shares of Series A Preferred Stock, we may not have sufficient cash to do so through the mandatory conversion date of June 29, 2018.



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We have a significant amount of goodwill and other intangible assets on our balance sheet.  If our goodwill or other intangible assets become impaired, we may be required to record a non-cash charge to earnings and reduce our stockholders’ equity.



Under generally accepted accounting principles, intangible assets are reviewed for impairment on an annual basis or more frequently whenever events or circumstances indicate that their carrying value may not be recoverable.  Frontier monitors relevant circumstances, including general economic conditions, enterprise value EBITDA multiples for other providers of communications services, our overall financial performance, and the market prices for our stock, and the potential impact that changes in such circumstances might have on the valuation of Frontier’s goodwill or other intangible assets.  If our goodwill or other intangible assets are determined to be impaired in the future, we may be required to record a non-cash charge to earnings during the period in which the impairment is determined, which would reduce our stockholders’ equity.



Risks Related to Regulation



Changes in federal or state regulations may reduce the switched access charge revenues we receive.



A portion of Frontier’s total revenues ($170 million, or 2%, in 2016 and $177 million, or 3%, in 2015) are derived from switched access charges paid by other carriers for services we provide in originating and terminating intrastate and interstate long distance traffic.  Frontier expects a portion of our revenues will continue to be derived from switched access charges paid by these carriers for these services. The amount of switched access charge revenues that Frontier will receive for these services is regulated by the FCC and state regulatory agencies and the rate Frontier can charge for terminating switched access is expected to decline in 2017.



In 2011, the FCC adopted the 2011 Order regarding Intercarrier Compensation, which is the payment framework that governs how carriers compensate each other for the exchange of interstate traffic. The 2011 Order began a multi-year transition that moves the rate for terminating traffic to near zero by 2017.  Frontier is permitted to recover a significant portion of those revenues through end user rates and other replacement support mechanisms. Additionally, the 2011 Order requires VoIP providers to pay interstate terminating interconnection charges and requires all carriers terminating traffic to provide appropriate call information, thus prohibiting so-called “phantom traffic.”  The reform of the Universal Service Fund shifts the existing High-Cost portion of the fund from supporting voice services to supporting broadband deployment in high-cost areas.  The 2011 Order preempts the states with regard to the regulation of intrastate terminating access rates.  The 2011 Order has been challenged in court and the FCC was petitioned to reconsider various aspects of it. The only issue that remains active on appeal is the ability of competitive carriers to assess VoIP access charges.



The FCC also has an ongoing proceeding considering whether to make changes to its regulatory regime governing special access services. When and how these proposed changes will be addressed is unknown and, accordingly, we cannot predict the impact of future changes on our results of operations.



Certain states also have their own open proceedings to address reform to intrastate access charges and other intercarrier compensation and state universal service funds. Although the FCC has pre-empted state jurisdiction on most access charges, many states could consider moving forward with their proceedings. We cannot predict when or how these matters will be decided or the effect on our subsidy or switched access revenues.  However, future reductions in our subsidy or switched access revenues may directly affect our profitability and cash flows as those regulatory revenues do not have an equal level of associated variable expenses.



We are reliant on support funds provided under federal and state laws.



A portion of Frontier’s total revenues ($626 million, or 7%, in 2016 and $500 million, or 9%, in 2015) are derived from federal and state subsidies for rural and high-cost support, commonly referred to as USF.  The FCC’s 2011 Order changed how federal subsidies are calculated and disbursed, with these changes being phased-in beginning in July 2012.  These changes transition the USF, which supports voice services in high-cost areas, to the CAF, which supports broadband deployment in high-cost areas.



Future reductions in these subsidies, or in our ability to recover such fees, could have a material adverse effect on our business or results of operations.



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Frontier and our industry will likely remain highly regulated, and we could incur substantial compliance costs that could constrain our ability to compete in our target markets.



As an incumbent local exchange carrier, some of the services we offer are subject to significant regulation from federal, state and local authorities.  This regulation could impact our ability to change our rates, especially on our basic voice services and our access rates, and could impose substantial compliance costs on us.  Regulation could constrain our ability to compete and, in some jurisdictions, may restrict our ability to expand our service offerings.  In addition, changes to the regulations that govern our business (including any implementation of the 2011 Order or the 2015 Order) may have an adverse effect on our business by reducing the allowable fees that we may charge, imposing additional compliance costs, reducing the amount of subsidies or otherwise changing the nature of our operations and the competition in our industry. At this time it is unknown how these regulations will affect Frontier’s operations or ability to compete in the future.  This and other FCC rulemakings and state regulatory proceedings, including those relating to intercarrier compensation, universal service and broadband services, could have a substantial adverse impact on our operations.



In addition, on June 14, 2016, the U.S. Court of Appeals for the D.C. Circuit upheld the FCC’s February 26, 2015 order that changed the regulatory classification of broadband service from an “information service” to a “telecommunications service”. In the Order, the FCC adopted specific obligations for fixed-mobile providers of broadband Internet access services and specifically prohibited the following: blocking access to legal content, applications, services, or non-harmful devices; impairing or degrading lawful Internet traffic on the basis of content, applications, services, or non-harmful devices; favoring some lawful Internet traffic over other lawful Internet traffic in exchange for consideration; and otherwise unreasonably harming consumers or edge providers, and announced additional transparency requirements intended to provide consumers more information about a providers network management practices, performance, speed and data caps. 



Our Internet access offerings could become subject to additional laws and regulations as they are adopted or applied to the Internet. As the significance of the Internet expands, federal, state and local governments may pass laws and adopt rules and regulations, or apply existing laws and regulations to the Internet (including Internet access services), and related matters are under consideration in both federal and state legislative and regulatory bodies.  We cannot predict whether the outcome of pending challenges to the FCC’s order or future proceedings will prove beneficial or detrimental to our competitive position.



Risks Related to Technology



We may be unable to meet the technological needs or expectations of our customers, and may lose customers as a result.



The telecommunications industry is subject to significant changes in technology, and replacing or upgrading our infrastructure to keep pace with such technological changes could result in significant capital expenditures.  If we do not replace or upgrade technology and equipment as necessary, we may be unable to compete effectively because we will not be able to meet the needs or expectations of our customers. 



In addition, enhancements to product offerings and the management of broadband speed and capacity issues may influence our customers to consider other service providers, such as cable operators or wireless providers.  We may be unable to attract new or retain existing customers from cable companies due to their deployment of enhanced broadband and VoIP technology.  In addition, new capacity services for wireless broadband technologies may permit our competitors to offer broadband data services to our customers throughout most or all of our service areas. Any resulting inability to attract new or retain existing customers could adversely impact our business and results of operations in a material manner.



Our services could be adversely affected and we may be subject to increased costs and claims in connection with Internet and systems security and malicious practices.



We use encryption and authentication technology licensed from third parties to provide secure transmission of confidential information, including our business data and customer information.  We also rely on employees in our network operations centers, data centers, call centers and retail stores to follow our procedures when handling such information.  Any unauthorized access, computer viruses, accidental or intentional release of confidential information or other disruptions could result in increased costs, customer dissatisfaction leading to loss of customers and revenues, and fines and other liabilities. 



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In addition, Frontier or Frontier’s customers using our network to access the Internet may become victim to malicious and abusive Internet activities, including unsolicited mass advertising (“spam”), peer-to-peer file sharing, distribution of viruses, worms and other destructive or disruptive software.  These activities could adversely affect our network, result in excessive call volume at our call centers and damage our or our customers’ equipment and data.  



Frontier maintains security measures, disaster recovery plans and business continuity plans for its business.  However, Frontier’s information technology networks and infrastructure may nonetheless be vulnerable to damage, disruptions or shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, natural disasters or other catastrophic events. Any such events could result in legal claims or proceedings, liability or penalties, disruption in operations, misappropriation of sensitive data, damage to Frontier’s reputation and costly response measures, which could adversely affect Frontier’s business. There can be no assurance that such disruptions or misappropriations and the resulting repercussions will not be material to our results of operations, financial condition or cash flows.



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Item 1B.  Unresolved Staff Comments



None.



Item 2.     Properties



We own property, which consists primarily of land and buildings, office and warehouse facilities, central office equipment, software, outside plant and related equipment. Outside communications plant includes aerial and underground cable, conduit, poles and wires. Central office equipment includes digital switches and peripheral equipment. As such, our properties do not provide a basis for description by character or location of principal units. All of our property is considered to be in good working condition and suitable for its intended purpose.



Our gross investment in property, by category, as of December 31, 2016, was as follows:





Item 3.   Legal Proceedings



See Note 19 of the Notes to Consolidated Financial Statements included in Part IV of this report.



We are party to various legal proceedings (including individual, class and putative class actions) arising in the normal course of our business covering a wide range of matters and types of claims including, but not limited to, general contracts, billing disputes, rights of access, taxes and surcharges, consumer protection, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers.  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.



Item 4.    Mine Safety Disclosures



Not applicable.

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PART II



Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



Our common stock is currently traded on the NASDAQ Global Select Market under the symbol FTR. The amount and timing of dividends payable on our common stock are within the sole discretion of our Board of Directors. On December 11, 2014, our Board of Directors approved a 5% increase over the 2014 dividend rate in the planned quarterly cash dividend rate, commencing with the dividend for the first quarter of 2015. Dividends on shares of the Series A Preferred Stock are payable on a cumulative basis when, as and if declared by our Board of Directors (or an authorized committee thereof) at an annual rate of 11.125% on the liquidation preference of $100.00 per share, on the last business day of March, June, September and December of each year, up to the mandatory conversion date of June 29, 2018. Series A Preferred Stock dividends of $214 million and $120 million were paid in 2016 and 2015, respectively. Cash dividends paid to common shareholders were $493 million and $456 million in 2016 and 2015, respectively.  The declaration and payment of future dividends on our common stock is at the discretion of our Board of Directors, and will depend upon many factors, including our financial condition, results of operations, growth prospects, funding requirements, payment of cumulative dividends on Series A Preferred Stock, applicable law, restrictions in agreements governing our indebtedness and other factors our Board of Directors deem relevant.



A portion of the dividends on common stock is classified as total ordinary dividends and represents qualified dividends, and a portion of the dividends is classified as non-dividend distributions and represents a return of capital. For the year ended December 31, 2016, all dividends on common stock were classified as non-dividend distributions and represented a return of capital.



The following table indicates the high and low intra-day sales prices per share of common stock, as reported by the NASDAQ Global Select Market, and sets forth dividends paid per share of common stock during the periods indicated.









As of February 10, 2017, the approximate number of security holders of record of our common stock was 419,910. This information was obtained from our transfer agent, Computershare Inc.





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STOCKHOLDER RETURN PERFORMANCE GRAPH



The following performance graph compares the cumulative total return of our common stock to the S&P 500 Stock Index and to the S&P Telecommunication Services Index for the five-year period commencing December 31, 2011. 





The graph assumes that $100 was invested on December 31, 2011 in each of our common stock, the S&P 500 Stock Index and the S&P Telecommunication Services Index and that all dividends were reinvested.











The foregoing performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent we specifically incorporate it by reference into such filing.





RECENT SALES OF UNREGISTERED SECURITIES, USE OF PROCEEDS FROM REGISTERED SECURITIES



There were no unregistered sales of equity securities during the fourth quarter of 2016.

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ISSUER PURCHASES OF EQUITY SECURITIES











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

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Item 6.  Selected Financial Data



The following tables present selected historical consolidated financial information of Frontier for the periods indicated. The selected historical consolidated financial information of Frontier as of and for each of the five fiscal years in the period ended December 31, 2016 has been derived from Frontier’s historical consolidated financial statements.  The selected historical consolidated financial information as of December 31, 2016 and 2015 and  for each of the years in the three-year period ended December 31, 2016 is derived from the audited historical consolidated financial statements of Frontier included elsewhere in this Form 10-K. The selected historical consolidated financial information as of December 31, 2014, 2013 and 2012 and for each of the years ended December 31, 2013 and 2012 is derived from the audited historical consolidated financial statements of Frontier not included in this Form 10-K. 















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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

            Introduction



(a)  Results of Operations



2016 Compared to 2015



On April 1, 2016, we completed our acquisition of Verizon’s wireline properties in California, Texas, and Florida (the CTF Acquisition).  Frontier’s scope of operations and balance sheet changed materially as a result of the completion of the CTF Acquisition. Historical financial and operating data presented for Frontier includes the results of the CTF Operations that were acquired in the CTF Acquisition from the date of acquisition on April 1, 2016 and is not indicative of future operating results. The financial discussion below includes a comparative analysis of our results of operations on a historical basis for Frontier operations as of and for the years ended December 31, 2016 and 2015. Unless otherwise noted, the variance explanations discussed below are based upon an analysis of the 2016 financial data for Frontier legacy operations (excluding the CTF Operations) in comparison to 2015.



The sections below include tables that present customer counts, average monthly revenue per customer (ARPC) and residential customer churn which we define as the average of the amount of residential customer deactivations during the month divided by the number of residential customers at the beginning of the month. The following also categorizes revenue into customer revenue (residential and business) and regulatory revenue (switched access and subsidy).  The decline in the number of customers was partially offset by increased penetration of additional higher revenue generating products and services sold to both residential and business customers, which has increased our average monthly revenue per customer in 2016 as compared to 2015. Similar to other wireline providers, we have experienced declines in the number of traditional voice customers, switched access minutes of use and rates per switched access minute of use, due to the FCC’s intercarrier compensation reform, as a result of competition and the availability of substitutes, a trend which we expect will continue.



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



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2016 CUSTOMER RELATED METRICS COMPARED TO 2015













Customer Trends

We provide service and product options in our residential and business offerings to the customer base in each of our markets which results in a better customer experience that allows us to maximize retention of existing customers and attract new customers. As of December 31, 2016, 63% of our residential broadband customers were subscribed to at least one other service offering.



During 2016, we gained approximately 2.0 million customers, net, as compared to a loss of 96,000 customers, net, in 2015. Although we added approximately 2.5 million customers in 2016 following the CTF Acquisition, we lost a net of approximately 553,000 customers across all of our markets. These customer losses were more heavily weighted in the newly acquired CTF markets due to transition disruptions following the acquisition, resulting in higher than normal customer churn, as well as the suspension of collection activities prior to and after the closing of the CTF Acquisition, and the suspension of marketing efforts for a period of time following the acquisition.  These actions resulted in fewer additions than would otherwise have been achieved. Higher than normal customer losses are expected to continue into 2017 as collections efforts are caught-up for delinquent accounts and marketing efforts ramp up.



We had approximately 4.9 million and 3.1 million total residential customers as of December 31, 2016 and 2015, respectively.  Although we added approximately 2.3 million total residential customers attributable to the CTF Acquisition in 2016, we lost approximately 516,000 residential customers, net, during 2016, composed of losses in both our legacy markets and in the CTF markets,  principally driven by declines in voice customers. Our residential customer monthly churn was 1.98% for 2016. Average monthly residential revenue per customer (residential ARPC) increased $13.54, or 21%, to $77.47 during 2016 as compared to 2015. The overall increase in residential ARPC is a result of higher video revenue from our CTF Operations and improvements in data services revenue for our legacy operations, partially offset by lower voice services revenue.  We expect to improve our video and data subscriber trends for our Frontier legacy and CTF operations.  We anticipate continuing declines in voice services revenue as fewer residential customers subscribe to landline voice services. Frontier expects continuing increases in data services revenue, primarily driven by increased broadband subscribers, and continuing declines in voice services revenue.



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We had approximately 0.5 million and 0.3 million total business customers as of December 31, 2016 and 2015, respectively. Although we added 250,000 total business customers attributable to the CTF Acquisition in 2016, we lost approximately 38,000 business customers, net in 2016, composed of losses in both our legacy markets and in the CTF markets. Average monthly business revenue per customer (business ARPC) decreased $17.16, or 2%, to $673.72 during 2016 as compared to 2015.  The business ARPC decrease is primarily attributable to our CTF markets having lower ARPC per SME (small business, medium business and larger enterprise customers) customer and proportionally fewer wholesale customers relative to total business customers as compared to our legacy markets.  Frontier expects the declines in voice services revenue and wireless backhaul revenues from business customers to continue in 2017, mitigated, in part, by increases in data services revenue. We have seen modest increases in our revenues from small/medium/enterprise (SME) customers throughout 2016, and our Ethernet product revenues from our SME and carrier customers has grown by 8% for the Frontier legacy operations during 2016.



At December 31, 2016, we had approximately 1.8 million more broadband subscribers than we did at December 31, 2015.  We added 2,052,000 subscribers as part of the CTF Acquisition; however, we lost approximately 243,000 net subscribers, primarily due to fewer gross activations and higher customer churn.  At December 31, 2016, 57% of our consolidated residential broadband customers subscribed to speeds in excess of our 6 Mbps basic speed tier, up from 29% at December 31, 2015.



We offer video services under the Vantage brand to our customers in Connecticut, South Carolina, Minnesota, and Illinois and under the FiOS® brand in California, Texas, and Florida (and on a limited basis in Indiana, Oregon and Washington).  We also offer satellite TV video service to our customers under an agency relationship with DISH® in all of our markets.  During the year, we added 1,165,000 video subscribers in the CTF Acquisition.  For the full year, we lost approximately 300,000 net video subscribers across all markets.  At December 31, 2016, we had 1.14 million linear video subscribers that are served with FiOS or Vantage video service. In addition to our linear video subscribers, we have 274,000 DISH satellite video customers.



2016 REVENUE COMPARED TO 2015











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REVENUE



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



Consolidated total revenue for 2016 increased $3,320 million to $8,896 million as compared to 2015. Excluding additional revenue of $3,622 million in 2016 attributable to CTF operations, our revenue for 2016 decreased $302 million, or 5%, as compared to 2015. This decline in 2016 is primarily the result of decreases in voice services revenues and lower switched and nonswitched access revenue, partially offset by an increase in data services revenue, each as described in more detail below.



Customer revenue for the year ended December 31, 2016 increased $3,200 million to $8,099 million as compared to 2015. Excluding additional customer revenue of $3,447 million attributable to the CTF Operations, our customer revenue for 2016 decreased $247 million, or 5%, as compared to 2015. 



Consolidated residential customer revenue for the year ended December 31, 2016 increased $1,951 million, or 80%, as compared to 2015. Consolidated residential customer revenue for the year ended December 31, 2016 included $2,092 million of revenue attributable to the CTF Operations. Residential customer revenues for our legacy operations for the year ended December 31, 2016 decreased $141 million, or 6%, compared to 2015, primarily as a result of decreases in voice services revenue, partially offset by increases in data services revenue.  Similar to other wireline providers, we have experienced declines in the number of traditional voice customers and switched access minutes of use as a result of competition and the availability of substitutes, a trend we expect to continue. The consolidated monthly average revenue per customer (ARPC) for our residential customers increased 21% for the year ended December 31, 2016 as compared to 2015. The overall increase in residential ARPC is a result of higher video revenue from our CTF Operations and improvements in data services revenue for our legacy operations, partially offset by lower voice services revenue.



Consolidated business customer revenue for 2016 increased $1,249 million, or 51%, as compared to 2015.  Consolidated business customer revenue for 2016 included $1,355 million of revenue attributable to the CTF Operations.  Business customer revenue for our legacy operations declined $106 million, or 4%, as compared to 2015, principally as a result of decreases in our voice services revenue and wireless backhaul revenue. The consolidated ARPC for our business customers decreased 2%, for the year ended December 31, 2016 as compared with 2015.  The business ARPC decrease is primarily attributable to our CTF markets having lower ARPC per SME (small business, medium business and larger enterprise customers) customer and proportionally fewer wholesale customers relative to total business customers as compared to our legacy markets.



Consolidated switched access and subsidy revenue of $797 million represented 9% of our revenues for 2016. Switched access revenue was $170 million in 2016, or 2% of our revenues, down from $177 million, or 3% of our revenues, in 2015. The Report and Order released by the FCC on November 18, 2011 (the 2011 Order) provided for the gradual elimination of terminating traffic charges by 2017 with a related decline in operating expenses.  Switched access revenue declined sequentially in the third quarter of 2016, reflecting the rate reductions mandated by the 2011 Order, and we anticipate that we have experienced nearly all of the rate decline related to the 2011 Order.  We have been able to recover a significant portion of these lost revenues through end user rates and other replacement support mechanisms, a trend we expect will continue throughout 2017. We expect declining revenue trends in switched access revenue to continue in 2017 in our legacy operations.  Subsidy revenue, including CAF Phase II subsidies, was $626 million in 2016, or 7% of our revenues, which increased from $500 million, or 9% of our revenues, in 2015.



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



Voice Services

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



Voice services revenue for 2016 decreased as compared with 2015, primarily due to the continued loss of voice customers and, to a lesser extent, decreases in individual feature packages, as well as long distance revenue among those customers that do not have a bundled long distance plan, partially offset by increased local voice charges to residential and business end users. 

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Data and Internet Services 

Data and Internet services include broadband services for residential and business customers. We provide data transmission services to high volume business customers and other carriers with dedicated high capacity circuits (“nonswitched access”) including services to wireless providers (“wireless backhaul”).  In addition, we offer our Frontier Secure suite of products, including computer security, cloud backup and sharing, identity protection and equipment insurance. Frontier Secure also provides technical support services for businesses.



Data and Internet services revenue for 2016 decreased as compared with 2015.  Data services revenues for 2016 increased $45 million, or 3%, primarily due to higher Frontier Secure revenues. Nonswitched access revenues decreased $55 million, or 6%, primarily due to lower monthly recurring revenues for wireless backhaul and other carrier services. We expect wireless data usage to continue to increase, which may drive the need for additional wireless backhaul capacity. Despite the need for additional capacity, in the near term, we anticipate that our overall wireless backhaul revenues (which comprise approximately 3% of our total revenues) will continue to be subject to decline in 2017, as our carrier customers migrate to Ethernet solutions at lower price points or migrate to our competitors.



Video Services

Video services include revenues generated from services provided directly to residential customers through the FiOS video and Vantage video brands, and through DISH satellite TV services.



Video services for 2016 decreased primarily due to a decrease in the total number of video subscribers.



Other

Other customer revenue includes sales of customer premise equipment to our business customers and directory services, less our provision for bad debts.



Other revenues for 2016 decreased primarily due to lower directory services revenue.



Switched Access and Subsidy

Switched access and subsidy revenues include revenues derived from allowing other carriers to use our network to originate and/or terminate their local and long distance voice traffic (“switched access”). These services are primarily billed on a minutes-of-use basis applying tariffed rates filed with the FCC or state agencies. We also receive cost subsidies from state and federal authorities, including the Connect America Fund.



Switched access and subsidy revenue for 2016 decreased as compared to 2015. Subsidy revenues decreased $16 million, or 3% in 2016, primarily attributable to the one-time true-up payments and phasedown support recognized in 2015 in connection with the CAF Phase II program.  Switched access revenue decreased $39 million, or 22%, in 2016 primarily due to the impact of the decline in minutes of use related to access line losses and the displacement of minutes of use by wireless and other communications services, combined with the lower rates enacted by the FCC’s intercarrier compensation.

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2016 OPERATING EXPENSES COMPARED TO 2015



NETWORK ACCESS EXPENSE







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



Network access expenses for 2016 decreased in our legacy markets, primarily due to lower long distance costs and video content costs as a result of a decline in video customers, partially offset by increases in customer premise equipment costs, pole and conduit rental expense, and Frontier Secure costs.



NETWORK RELATED EXPENSES







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



Network related expenses for 2016 decreased due to lower compensation costs, primarily related to decreased employee headcount, and certain benefits, including incentive compensation,  pension and OPEB expense (as discussed below), and a reduction in rental costs for vehicles under operating leases that were modified during 2016, resulting in the classification as capital leases.



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. 



SG&A expenses for 2016 increased due to higher costs for compensation, primarily related to increased employee headcount due to additional services provided by Frontier Secure, and certain benefits, including pension and OPEB expense (as discussed below), partially offset by lower incentive compensation for the year.

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Pension and OPEB Costs

Frontier allocates Pension and OPEB costs to network related expenses and SG&A expenses. Total consolidated pension and OPEB costs, excluding special termination benefits of $26 million in 2016,   for the years ended December 31, 2016 and 2015 were as follows:



   





DEPRECIATION AND AMORTIZATION







Depreciation and amortization expense for 2016 decreased primarily due to the accelerated method of amortization related to the customer base that was acquired in our 2010 Acquisition with Verizon and in the Connecticut Acquisition, combined with changes in the remaining useful lives of certain plant assets and a lower net asset base.





RESTRUCTURING COSTS AND OTHER CHARGES





_________________

NM – Not Meaningful



Restructuring costs and other charges increased in 2016 compared to 2015 primarily due to a reduction in the workforce of approximately 1,950 employees resulting in an increase in severance and related expenses of $30 million and pension/OPEB special termination benefit enhancements of $25 million.





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2015 Compared to 2014



On October 24, 2014, Frontier completed the Connecticut Acquisition.  The financial discussion below includes a comparative analysis of our results of operations on a historical basis for our Frontier operations as of and for the years ended December 31, 2015 and 2014.  Unless otherwise noted, the variance explanations discussed below are based upon an analysis of the 2015 financial data for Frontier legacy operations (excluding the Connecticut Operations) in comparison to 2014 financial data for Frontier legacy operations (excluding the Connecticut Operations).



2015 CUSTOMER RELATED METRICS COMPARED TO 2014













Customer Trends

During 2015, we lost 96,000 customers, net, compared to a gain of 435,000 customers, net, in 2014. Although we added 517,000 customers in  2014 following the Connecticut Acquisition, we lost 82,000 customers, net, in 2014 across all of our markets.



We had approximately 3.1 million and 3.2 million total residential customers as of December 31, 2015 and 2014, respectively.  Although we added 468,000 total residential customers attributable to the Connecticut Acquisition in 2014, we lost approximately 81,000 and 67,000 residential customers, net during 2015 and 2014, respectively, composed of losses in both our legacy markets and in the Connecticut markets, principally driven by declines in voice customers.  Our residential customer monthly churn was 1.82% and 1.73% for 2015 and 2014, respectively.  Residential ARPC increased $2.82, or 5%, to $63.93 during 2015 as compared to 2014. The overall increase in residential ARPC is due to a higher percentage of Frontier’s residential customers who subscribe to our broadband services, the increase in our Frontier TV and FiOS-branded video customers, which is primarily attributable to our Connecticut Operations, and the increase in customers subscribed to multiple services.



We had approximately 0.3 million total business customers as of December 31, 2015 and 2014.  Although we added  49,000 total business customers attributable to the Connecticut Acquisition in 2014, we lost approximately 16,000 and 15,000 business customers, net, during 2015 and 2014, respectively.  Business ARPC increased $29.73, or 4%, to $690.88 during 2015 as compared to 2014. The overall increase in business ARPC is primarily due to declining customer counts for our small business customers that carry a lower ARPC.



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During 2015, Frontier added approximately 102,000 net broadband subscribers. During 2014, Frontier added approximately 493,000 (including 385,000 from the Connecticut Acquisition) net broadband subscribers.  As of December 31, 2015, approximately 64% of our residential broadband customers subscribed to a bundle of services. As of December 31, 2015, we were able to offer broadband to approximately 7.9 million households, or 93% of the 8.5 million households in our markets. The increase in broadband subscribers contributed to our improved data services revenue performance. At December 31, 2015, 29% of our residential broadband customers subscribed to speeds in excess of our 6 Mbps basic speed tier, up from 24% at December 31, 2014. We offer FiOS-branded video services in three states, Frontier TV-branded video services in Connecticut and satellite video services through DISH throughout our territories. We lost 28,000 video subscribers, net during 2015 primarily due to the loss of DISH subscribers. At December 31, 2015, we had 554,000 video customers.



2015 REVENUE COMPARED TO 2014











REVENUE



Consolidated total revenue for 2015 increased $804 million to $5,576 million as compared to 2014. Excluding revenues attributable to the Connecticut operations, our total revenue for 2015 decreased $29 million, or 1%, as compared to 2014. This decline in 2015 is primarily the result of decreases in voice services revenues and lower switched and nonswitched access revenue, partially offset by an increase in data services revenue and subsidy revenue, each as described in more detail below.



Consolidated residential customer revenue for 2015 included $531 million of revenue attributable to the Connecticut operations. Consolidated residential customer revenue for our Frontier legacy operations declined $75 million, or

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4%, as compared with 2014, primarily as a result of decreases in voice services revenue, partially offset by increases in data services revenue.



Consolidated business customer revenue for 2015 included $475 million of revenue attributable to the Connecticut operations. Consolidated business customer revenue for our Frontier legacy operations declined $78 million, or 4%, as compared with 2014, principally as a result of decreases in our voice services revenue and wireless backhaul revenue.



Consolidated switched access and subsidy revenue of $677 million represented 12% of our revenues for 2015. Switched access revenue was $177 million in 2015, or 3% of our revenues, down from $201 million, or 4% of our revenues, in 2014. Subsidy revenue was $500 million in 2015, or 9% of our revenues, which increased from $319 million, or 7% of our revenues, in 2014.



Voice Services

Voice services revenues for 2015 decreased as compared with 2014, primarily due to $180 million, or 12%, in lower local and enhanced services revenue. This decrease is primarily due to the continued loss of voice customers and, to a lesser extent, decreases in individual features packages, partially offset by increased local voice charges to residential and business end users.  Long distance services revenue decreased $28 million, or 8%, primarily due to a 10% decrease in minutes of use driven by fewer customers, partially offset by increased cost recovery surcharge rates.



Data and Internet Services

Data and Internet services revenues for 2015 increased as compared with 2014. Nonswitched access revenues decreased $68 million, or 8%, primarily due to lower monthly recurring revenues for wireless backhaul and other carrier service revenues. These decreases were more than offset by increases in data services revenues of $121 million, or 12%, primarily due to a 4% increase in the total number of broadband subscribers and higher Frontier Secure revenues.



Video Services

Video services revenue for 2015 remained the same as compared to 2014.



Other

Other revenues for 2015 remained relatively flat primarily due to changes in our provision for bad debts and increased customer premise equipment revenues, offset by lower directory services revenues.



Switched Access and Subsidy

Switched access and subsidy revenue for 2015 increased as compared to 2014. Subsidy revenues increased $164 million, or 52% in 2015, primarily due to the additional CAF Phase II funding, which increased support by more than $159 million in 2015.  Switched access revenue decreased $40 million, or 21%, in 2015 primarily due to the impact of a decline in minutes of use related to access line losses and the displacement of minutes of use by wireless and other communications services combined with the lower rates enacted by the FCC’s intercarrier compensation reform in July 2013.



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2015 OPERATING EXPENSES COMPARED TO 2014



NETWORK ACCESS EXPENSE







Network access expenses for 2015 decreased, primarily due to lower long distance costs as a result of decreased minutes of use and lower pole rental costs, partially offset by an increase in network access expenses related to higher broadband subscriber counts and costs for providing new circuits to our markets.





NETWORK RELATED EXPENSES







Network related expenses for 2015 increased due to higher costs for compensation, primarily due to storm-related costs, and certain benefits, including pension and OPEB expense (as discussed below), and increased fleet and facilities costs, partially offset by reduced installation and repair costs.





SELLING, GENERAL AND ADMINISTRATIVE EXPENSES





SG&A expenses for 2015 increased due to higher costs for compensation, primarily related to increased employee headcount due to additional services provided by Frontier Secure, and certain benefits, including pension and OPEB expense (as discussed above), partially offset by lower litigation and facilities costs.

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Pension and OPEB Costs

Frontier allocates Pension and OPEB costs to network related expenses and SG&A expenses.  Total consolidated pension and OPEB costs for the years ended December 31, 2015 and 2014 were as follows:







   



DEPRECIATION AND AMORTIZATION





Depreciation and amortization expense for 2015 decreased primarily due to the accelerated method of amortization related to the customer base that was acquired in the 2010 Acquisition with Verizon, changes in the remaining useful lives of certain plant assets and a lower net asset base. 





ACQUISITION AND INTEGRATION COSTS



Acquisition costs include legal, financial advisory, accounting, regulatory and other related costs. Integration costs include expenses that are incremental and directly related to the acquisition, and were incurred to integrate the network and information technology platforms and to enable other integration initiatives.



We invested $142 million and $129 million in capital expenditures related to the CTF Acquisition during the years ended December 31, 2016 and 2015, respectively.



We also invested $24 million and $116 million in capital expenditures related to the Connecticut Acquisition during the years ended December 31, 2015 and 2014, respectively.



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OTHER NON-OPERATING INCOME AND EXPENSE

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NM – Not Meaningful



Investment and Other Income, Net

Investment and other income, net for 2016 increased $13 million for a gain on expiration/settlement of customer advances combined with higher interest and dividend income of $6 million, primarily due to interest earned on restricted cash during the first quarter of 2016, partially offset by a decrease of $7 million due to a loss on debt exchanges.



Investment and other income, net for 2015 decreased due to a $25 million gain on the sale of our minority interest in a wireless partnership and a $12 million gain on the sale of an intangible asset in 2014, partially offset by higher interest and dividend income of $5 million in 2015.



Interest expense

Interest expense for 2016 increased, primarily due to additional interest of $755 million in 2016 on the $6 billion senior notes offering and the $1,625 million term loan facility related to the CTF Acquisition. We incurred commitment fees of $10 million and $184 million for the Verizon Bridge Facility (as defined below) related to the CTF Acquisition during 2016 and 2015, respectively. Our composite average borrowing rate as of December 31, 2016 and 2015 was 8.55% and 8.99%, respectively.



Interest expense for 2015 increased primarily due to interest on the $6.6 billion senior notes offering completed in September 2015, as well as $184 million in commitment fees for the Verizon Bridge Facility (as defined below) related to the CTF Acquisition as compared to the commitment fees of $23 million on the bridge loan facility related to the Connecticut Acquisition during 2014. We also incurred additional interest in 2015 on the $1,900 million debt financing related to the Connecticut Acquisition.



Income tax expense (benefit)

Income tax benefit for 2016 increased compared to 2015,  primarily due to the increase in pretax loss. The effective tax rate on our pretax loss for 2016 was 40.2% as compared with 45.8% for 2015. Income taxes for 2016 include the impact of $36 million of tax benefits resulting primarily from the adjustment of deferred tax balances due to the CTF Acquisition in 2016.



Income tax expense (benefit) for 2015 was an income tax benefit of $165 million compared to income tax expense of $30 million for 2014.  The change in income tax expense (benefit) was primarily due to the change from pretax income to pretax loss. Our effective tax rate was 45.8% for 2015 compared with 18.7% for 2014. Income taxes for 2015 include the impact of a $3 million benefit arising from the adjustment of deferred tax balances and a $5 million benefit from the federal research and development credit.



We received $120 million in tax refunds in 2016 as compared to net cash taxes paid of $28 million and $70 million in 2015 and 2014, respectively.



Net income (loss) attributable to Frontier common shareholders

Net income (loss) attributable to Frontier common shareholders for 2016 was a net loss of $587 million, or $0.51 per share, as compared to a net loss of $316 million, or $0.29 per share, in 2015 and net income of $133 million, or $0.13 per share, in 2014. 

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(b)  Liquidity and Capital Resources  



Analysis of Cash Flows

As of December 31, 2016, we had cash and cash equivalents aggregating $522 million. Our primary source of funds during 2016 was restricted and unrestricted cash, additional borrowings, along with cash generated from operations.  In 2016, we used cash flow from operations, restricted cash, and cash on hand to principally fund all of our cash investing and financing activities, primarily the CTF Acquisition, capital expenditures, dividends, and debt repayments.  On April 1, 2016, we used the restricted cash obtained from net proceeds of the September 2015 senior notes offering and June 2015 equity offerings, along with additional borrowings and cash on hand, to finance the CTF Acquisition.



At December 31, 2016, we had a working capital deficit of $788 million, including $363 million of long-term debt due within one year, as compared to a working capital surplus of $8,238 million at December 31, 2015. The decline in working capital is primarily due to a reduction in restricted cash and unrestricted cash and cash equivalents of $8,858 million, primarily related to funding the CTF Acquisition, and an increase in current liabilities of $551 million.



Cash Flows provided by Operating Activities



Cash flows provided by operating activities increased $365 million, or 28%, to $1,666 million in 2016 as compared to 2015. The increase was primarily the result of the addition of our CTF operations, partially offset by unfavorable changes in working capital along with higher interest expense and acquisition and integration costs.



We received $120 million in tax refunds in 2016 as compared to net cash taxes paid of $28 million and $70 million in 2015 and 2014, respectively.



In connection with the CTF Acquisition, Frontier recognized acquisition and integration costs of $436 million during 2016 compared to $196 million during 2015. Interest expense of $755 million was incurred during 2016 related to the September 2015 debt offering and the 2015 Credit Agreement (as defined below) compared to $189 million in interest expense during 2015. Additionally, Frontier incurred $10 million of interest expense related to the Verizon Bridge Facility in 2016 compared to $184 million during 2015.



In connection with the Connecticut Acquisition, Frontier recognized $40 million and $142 million of acquisition and integration costs incurred in 2015 and 2014, respectively, and $23 million of interest expense in 2014, in connection with the bridge loan facility related to the Connecticut Acquisition.



Cash Flows used by Investing Activities



Capital Expenditures

In 2016, 2015 and 2014, our capital expenditures were, respectively, $1,401 million, $863 million and $688 million (including $142 million, $153 million and $116 million of integration-related capital expenditures in 2016, 2015 and 2014, respectively, associated with the CTF Acquisition and the Connecticut Acquisition). Frontier received a total of $133 million during the 2012-2014 period from the Connect America Fund (CAF) Phase I Program to support broadband deployment in unserved and underserved high-cost areas. In addition to the capital expenditures mentioned above, network expansion funded by the previously received CAF Phase I funds amounted to $22 million and $56 million in 2015 and 2014, respectively. Capital expenditures related to CAF Phase II are included in our reported amounts for capital expenditures. We anticipate capital expenditures for business operations to be approximately $1.00 billion to $1.25 billion in 2017, as compared to $1,259 million in 2016.



CTF Acquisition

On April 1, 2016, Frontier acquired the wireline operations of Verizon in California, Texas and Florida for a purchase price of $10,540 million in cash and assumed debt (the CTF Acquisition), pursuant to the February 5, 2015 Securities Purchase Agreement, as amended.  In addition, Frontier and Verizon settled the working capital and net debt adjustments with $15 million paid to Frontier in October 2016.



Connecticut Acquisition

On October 24, 2014, Frontier acquired the wireline properties of AT&T in Connecticut. After including the working capital adjustment payment of $18 million, the total purchase price for the Connecticut Acquisition was $2,018 million.



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Cash Flows used by and provided from Financing Activities



Debt Financings

Refer to the below discussion under Capital Resources – Term Loan Facilities.



Financing the CTF Acquisition

On September 25, 2015, Frontier completed a private offering of $6,600 million aggregate principal amount of senior unsecured notes, as follows: $1,000 million of 8.875% Senior Notes due 2020; $2,000 million of 10.50% Senior Notes due 2022; and $3,600 million of 11.00% Senior Notes due 2025. Each was issued at a price equal to 100% of its principal amount. Frontier used the net proceeds from the offering (after deducting underwriting fees) to finance a portion of the cash consideration paid in connection with the CTF Acquisition and to pay related fees and expenses. The net proceeds of the debt offering of $6,485 million were included in “Restricted cash” in the consolidated balance sheet as of December 31, 2015. In April 2016, we completed an exchange offer of registered senior notes for the privately placed senior notes.



Financing the Connecticut Acquisition

On September 17, 2014, Frontier completed a registered debt offering of $775 million aggregate principal amount of 6.25%  Senior Notes due 2021 and $775 million aggregate principal amount of 6.875% Senior Notes due 2025. We received net proceeds, after deducting underwriting fees, of $1,519 million from the offering. Frontier used the net proceeds from the offering of the notes, together with borrowings of $350 million under the 2014 CoBank Credit Agreement, as defined below, and cash on hand to finance the Connecticut Acquisition, which closed on October 24, 2014.



During 2015 and 2014, we also entered into secured financings totaling $3 million and $11 million, respectively, with four year terms and no stated interest rate for certain equipment purchases.



Debt Reduction

During 2016, 2015 and 2014, we retired an aggregate principal amount of $453 million, $298 million and $260 million, respectively, of debt consisting of $23 million, $295 million and $257 million, respectively, of senior unsecured debt and $1 million during 2015 and 2014, of rural utilities service loan contracts. Additionally, we retired $430 million, $3 million and $2 million of secured debt during 2016, 2015 and 2014, respectively.



Additionally, during 2016 we completed non-cash debt exchanges including related accrued interest, of $397 million of our 8.25% Notes due April 2017 for approximately $147 million of our 8.50% Notes due April 2020, $66 million of our 8.875% Notes due September 2020 and $188 million of our 10.50% Notes due September 2022. A pre-tax loss of approximately $7 million was recognized and included in “Investment and other income, net” in our consolidated statement of operations for the year ended December 31, 2016.  

  

Subject to limitations contained in our indentures and credit facilities, we may from time to time make repurchases of our debt in the open market, through tender offers, by exercising rights to call or in privately negotiated transactions. We may also refinance existing debt or exchange existing debt for newly issued debt obligations.



Common Stock Offering

On June 10, 2015, we completed a registered offering of 150,000,000 shares of our common stock, par value $0.25 per share, at an offering price of $5 per share. On June 24, 2015, Frontier issued an additional 15,000,000 shares of common stock in connection with the over-allotment option that was exercised in full by the underwriters. Aggregate net proceeds were approximately $799 million after deducting commissions and expenses. We used the net proceeds from this offering to fund a portion of the acquisition price of the CTF Acquisition and for related fees and expenses.



Mandatory Convertible Preferred Stock (Series A) Offering

On June 10, 2015, we also completed a registered offering of 17,500,000 shares of our 11.125% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share (the “Series A Preferred Stock”), at an offering price of $100 per share. On June 24, 2015, Frontier issued an additional 1,750,000 shares of Series A Preferred Stock in connection with the over-allotment option that was exercised in full by the underwriters. Aggregate net proceeds of the offering were $1,866 million after deducting commissions and expenses. We used the net proceeds from this offering to fund a portion of the acquisition price of the CTF Acquisition and for related fees and expenses.

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Capital Resources

We believe our operating cash flows, existing cash balances, existing revolving credit facility and access to the capital markets, as necessary, will be adequate to finance our working capital requirements, fund capital expenditures, make required debt interest and principal payments, pay taxes, pay dividends to our stockholders, and support our short-term and long-term operating strategies for the next twelve months. 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. As of December 31, 2016, we had $363 million and $733 million of debt maturing in 2017 and 2018, respectively.



Bridge Facilities

On February 5, 2015, we entered into a commitment for a bridge loan facility (the Verizon Bridge Facility) and recognized related interest expense of $10 million and $184 million for the years ended December 31, 2016 and 2015, respectively. The Verizon Bridge Facility terminated in accordance with its terms on September 25, 2015.



On December 16, 2013, we signed a commitment letter for a bridge loan facility (the Connecticut Bridge Facility) to finance the Connecticut Acquisition and recognized interest expense related to this commitment of $23 million during the year ended December 31, 2014. The Connecticut Bridge Facility terminated in accordance with its terms on September 17, 2014.



Term Loan Facilities

Borrowings under each of Frontier’s term loan credit agreements are secured by a pledge of the stock of Frontier North Inc., a wholly owned subsidiary, primarily representing Frontier operations in Illinois, Indiana, Michigan, Ohio, and Wisconsin.



On August 12, 2015, Frontier entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, for a $1,500 million senior secured delayed-draw term loan facility (the 2015 Credit Agreement).  Frontier exercised its right under the 2015 Credit Agreement to obtain additional commitments and increased the size of the facility to $1,625 million. On April 1, 2016, in connection with the closing of the CTF Acquisition, Frontier drew $1,550 million under that facility, with the additional $75 million drawn subsequently. The final maturity date is March 31, 2021.  Repayment of the outstanding principal balance will be made in quarterly installments, initially in the amount of $20 million per installment, which commenced on June 30, 2016. The quarterly installments will increase to $41 million, beginning with the 13th quarterly installment.  The remaining outstanding principal balance will be repaid on the final maturity date.  Borrowings under the term loan will bear interest based on margins over the Base Rate (as defined in the 2015 Credit Agreement) or LIBOR, at the election of Frontier.  Interest rate margins under the facility (ranging from 0.75% to 1.75% for Base Rate borrowings and 1.75% to 2.75% for LIBOR borrowings) are subject to adjustment based on Frontier’s Total Leverage Ratio (as defined in the 2015 Credit Agreement).  



Frontier has a credit agreement with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other lenders party thereto, for a $350 million senior unsecured term loan facility (the 2014 CoBank Credit Agreement). The facility was drawn upon closing of the Connecticut Acquisition with proceeds used to partially finance the acquisition. The maturity date is October 24, 2019. Repayment of the outstanding principal balance will be made in quarterly installments of $9 million, which commenced on March 31, 2015 with the remaining outstanding principal balance to be repaid on the maturity date. Borrowings under the 2014 CoBank Credit Agreement will bear interest based on the margins over the Base Rate (as defined in the 2014 CoBank Credit Agreement) or LIBOR, at the election of Frontier. Interest rate margins under the facility (ranging from 0.875% to 2.875% for Base Rate borrowings and 1.875% to 3.875% for LIBOR borrowings) are subject to adjustments based on our Total Leverage Ratio, as such term is defined in the 2014 CoBank Credit Agreement. The interest rate on this facility at December 31, 2016 was LIBOR plus 3.375%.



Frontier has two senior secured credit agreements with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other lenders party thereto: the first, for a $350 million senior term loan facility drawn in 2014 (the 2014 CoBank Credit Agreement), matures on October 24, 2019, and the second, for a $315 million senior term loan facility drawn in October 2016 (the 2016 CoBank Credit Agreement), matures on October 12, 2021. We refer to the 2014 CoBank Credit Agreement and the 2016 CoBank Credit Agreement collectively as the CoBank Credit Agreements.



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Repayment of the outstanding principal balance under each of the CoBank Credit Agreements is being made in quarterly installments ($9 million, with respect to the 2014 CoBank Credit Agreement, and $8 million, with respect to the 2016 CoBank Credit Agreement), in each case with the remaining outstanding principal balance to be repaid on the applicable maturity date.  Borrowings under each of the CoBank Credit Agreements bear interest based on the margins over the Base Rate (as defined in the applicable CoBank Credit Agreement) or LIBOR, at the election of Frontier. Interest rate margins under the facilities (ranging from 0.875% to 2.875% for Base Rate borrowings and 1.875% to 3.875% for LIBOR borrowings) are subject to adjustments based on our Total Leverage Ratio, as such term is defined in the applicable CoBank Credit Agreement.  The interest rate on these facilities at December 31, 2016 was LIBOR plus 3.375%.



Revolving Credit Facility

Borrowings under Frontier’s Revolving Credit Agreement are secured by a pledge of the stock of Frontier North Inc.



Frontier has a revolving credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, the lenders party thereto and the other parties named therein (the Revolving Credit Agreement), for a $750 million revolving credit facility (the Revolving Credit Facility) with a scheduled termination date of May 31, 2018.  As of December 31, 2016, the Revolving Credit Facility was fully available and no borrowings had been made thereunder. Associated commitment fees under the Revolving Credit Facility will vary from time to time depending on our debt rating (as defined in the Revolving Credit Agreement) and were 0.45% per annum as of December 31, 2016. During the term of the Revolving Credit Facility, Frontier may borrow, repay and reborrow funds, and may obtain letters of credit, subject to customary borrowing conditions. Loans under the Revolving Credit Facility will bear interest based on the alternate base rate or the adjusted LIBO Rate (each as determined in the Revolving Credit Agreement), at our election, plus a margin based on our debt rating (ranging from 0.50% to 1.50% for alternate base rate borrowings and 1.50% to 2.50% for adjusted LIBO Rate borrowings). The interest rate on this facility would have been the alternate base rate plus 1.50% or the adjusted LIBO Rate plus 2.50%, respectively, as of December 31, 2016. Letters of credit issued under the Revolving Credit Facility will also be subject to fees that vary depending on our debt rating. The Revolving Credit Facility is available for general corporate purposes but may not be used to fund dividend payments.

 

On February 27, 2017, Frontier amended and restated its April 2021 term loan and its revolving credit facility, combining them into a single credit agreement and unifying the covenants.  The amended and restated credit agreement provides Frontier with more flexible terms, increases the revolving credit facility to $850 million and extends the maturity of the revolving credit facility from 2018 to 2022.  The determination of interest rates remains unchanged.  The most significant change in the covenants is an increase of the maximum Leverage Ratio (as defined) to 5.25 to 1.0 initially, migrating to 5.0 to 1.0 beginning in the second quarter of 2018, 4.75 to 1.0 in the second quarter of 2019, and 4.5 to 1.0 in the second quarter of 2020.  In addition, under the amended and restated credit agreement, Frontier will be expanding the security package to include pledges of the equity interests in certain Frontier subsidiaries and guaranties by certain Frontier subsidiaries.



Letters of Credit Facility

Frontier has a Continuing Agreement for Standby Letters of Credit with Deutsche Bank AG New York Branch (the LC Agreement). As of December 31, 2016, $105 million of undrawn Standby Letters of Credit had been issued under the LC Agreement.  Borrowings under the LC Agreement are secured by a pledge of Frontier North Inc. 



Covenants

The terms and conditions contained in our indentures, the CoBank Credit Agreements, the 2015 Credit Agreement and the Revolving Credit Agreement include the timely payment of principal and interest when due, the maintenance of our corporate existence, keeping proper books and records in accordance with GAAP, restrictions on the incurrence of liens on our assets securing indebtedness and our subsidiaries’ assets, restrictions on the incurrence of indebtedness by our subsidiaries and restrictions on asset sales and transfers, mergers and other changes in corporate control subject to important qualifications and exceptions. We would be restricted from declaring dividends by the CoBank Credit Agreements, the 2015 Credit Agreement and the Revolving Credit Agreement if an event of default occurred and was continuing at the time or would result from the dividend declaration. In addition, under the Certificate of Designations of our 11.125% Mandatory Convertible Preferred Stock, Series A, we would be restricted from paying dividends on our common stock if we failed to declare and pay dividends on our Series A Preferred Stock.



The CoBank Credit Agreements, the 2015 Credit Agreement, and the Revolving Credit Agreement each contain a maximum leverage ratio covenant. Under those covenants, we are required to maintain a ratio of (i) total

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indebtedness minus cash and cash equivalents in excess of $50 million to (ii) consolidated adjusted EBITDA (as each such term is defined in the agreements) over the last four quarters not to exceed 4.50 to 1. 



Indentures for our senior unsecured debt obligations limit our ability to create liens on our assets securing indebtedness and our subsidiaries’ assets or merge or consolidate with other companies, our subsidiaries’ ability to borrow funds and to engage in change of control transactions, subject to important exceptions and qualifications. The indentures for our 8.875% Senior Notes due 2020, our 10.50% Senior Notes due 2022, and our 11.00% Senior Notes due 2025 contain covenants that are customary for similarly rated issuers. Among other things, these covenants limit our ability to incur additional indebtedness if our leverage ratio exceeds 4.5 to 1 (as defined in the indentures), limits liens and subsidiary debt to 1.25 times EBITDA (as defined in the indentures), limits cumulative restricted payments, including dividends, to cumulative EBITDA less 1.4 times cumulative interest expense (as defined in the indenture), if our leverage ratio does not exceed 4 to 1, and limits cumulative restricted payments, including dividends, to a lesser amount during periods, if any, in which our leverage ratio exceeds 4 to 1,  and restricts our ability to divest substantially all of the assets of Frontier.



As of December 31, 2016, we were in compliance with all of our indenture and credit facility covenants.



Dividends

We intend to continue to pay regular quarterly dividends on our common and preferred stock. Our ability to fund a regular quarterly dividend will be impacted by our ability to generate cash from operations. Holders of the Series A Preferred Stock are entitled to receive cumulative dividends at an annual rate of 11.125% of the initial liquidation preference of $100 per share, or $11.125 per year per share. Series A Preferred Stock dividends of $214 million and $120 million were paid during 2016 and 2015, respectively.



The declaration and payment of future dividends on our common stock is at the discretion of our Board of Directors, and will depend upon many factors, including our financial condition, results of operations, growth prospects, funding requirements, payment of cumulative dividends on Series A Preferred Stock, applicable law, restrictions in agreements governing our indebtedness and other factors our Board of Directors deem relevant.



Off-Balance Sheet Arrangements

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



Future Contractual Obligations and Commitments

A summary of our future contractual obligations and commercial commitments as of December 31, 2016 is as follows:



During 2016, we increased our outstanding performance letters of credit from $50 million to $125 million at December 31, 2016.



On April 29, 2015, the FCC released its right of first refusal offer of support to price cap carriers under the CAF Phase II program, which is intended to provide long-term support for broadband in high-cost unserved or underserved areas.  In June 2015, Frontier accepted the CAF Phase II offer, which provides for $332 million in annual support, including $49 million in annual support related to the properties acquired in the CTF Acquisition,

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through 2020 to make available 10 Mbps downstream/1 Mbps upstream broadband service to approximately 774,000 households across certain of the 29 states where we now operate.



To the extent we do not enable the required number of households with 10 Mbps downstream/1 Mbps upstream broadband service by the end of the CAF Phase II term, we will be required to return a portion of the funds previously received. 



Critical Accounting Policies and Estimates



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



These critical accounting estimates have been reviewed with our independent registered public accounting firm and with the Audit Committee of our Board of Directors. For a discussion of these and other accounting policies, see Note 1 of the Notes to Consolidated Financial Statements.



Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts based on our estimate of our ability to collect accounts receivable.  Our estimates are based on assumptions and other considerations, including payment history, customer financial performance, carrier billing disputes and aging analysis.  Our estimation process includes general and specific reserves and varies by customer category.  In 2016 and 2015, we had no “critical estimates” related to bankruptcies of communications companies or any other significant customers. See Notes 1 and 4 of the Notes to Consolidated Financial Statements for additional discussion.



Indefinite-lived Intangibles

Our indefinite-lived intangibles consist of goodwill and trade name, which were generated as a result of business combinations. We test for impairment of these assets annually as of December 31, or more frequently, whenever events occur or facts and circumstances change that would more likely than not reduce the fair value of an operating segment below its carrying amount. Events that might indicate impairment include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, material negative changes in relationships with significant customers, and/or a significant decline in our stock price for a sustained period.



We perform the two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized, if any. The first step in the goodwill impairment test compares the carrying value of net assets of the operating segment to its fair value. If the fair value exceeds the carrying value, no further testing is required. However, if the fair value is less than the carrying value, an indication of impairment exists and a second step is performed. These tests are performed at the reporting unit level, which at December 31, 2016, was our seven regional operating segments.  In early 2017, we will evaluate changes to the management reporting that our chief operating decision makers review from this regional construct to a functional construct including consumer, commercial, operations and engineering, which may lead to different operating segments.



We use a market multiples approach to determine fair value. Marketplace company comparisons and analyst reports have historically supported a range of fair values of multiples between 5.0x and 7.9x annualized EBITDA.  For the purpose of the goodwill impairment test we define 2016 EBITDA as operating income, net of acquisition and integration costs, non-cash pension and OPEB costs, and restructuring costs and other charges, plus depreciation and amortization.  We estimated the enterprise fair value using a multiple of 5.8x EBITDA. Once determined, this estimate of enterprise fair value is then allocated to the operating segments based upon each unit’s relative share of consolidated EBITDA. The result of this first step indicated that fair values of each operating segment exceed their carrying values. As a result, the second step of the goodwill impairment test was not required. As an additional step to corroborate the results of the first step of the impairment test, we complete a reconciliation of our market capitalization and overall enterprise value to the fair value of all of our operating segments.



The enterprise fair value is sensitive to the amount of EBITDA generated by Frontier and the EBITDA multiple used in the calculation.  Significant changes in the assumptions or estimates used in our impairment analyses, such as a reduction in profitability and/or cash flows, could result in a non-cash goodwill and indefinite-lived intangible asset impairment charge and materially affect our operating results. If the assumptions for either of our EBITDA or EBITDA multiple were to decrease by 10% there would be an indication of impairment.   Declines in our stock price

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could also affect the reconciliation of our market capitalization and overall enterprise value to the fair value of all of our operating segments and indicate impairment.  For more information on goodwill, see Note 6 of the Notes to Consolidated Financial Statements.



Depreciation and Amortization

The calculation of depreciation and amortization expense is based upon the estimated useful lives of the underlying property, plant and equipment and identifiable finite-lived intangible assets.  Depreciation expense is principally based on the composite group method for substantially all of our property, plant and equipment assets. The estimates for remaining lives of the various asset categories are determined annually, based on an independent study. Among other considerations, these studies include models that consider actual usage, replacement history and assumptions about technology evolution for each category of asset. The latest study was completed in the fourth quarter of 2016 and did not result in any significant changes in remaining lives for any of our asset categories. A one year decrease in the estimated useful lives of our property, plant and equipment would result in an increase of approximately $157 million to depreciation expense.



Our finite-lived intangibles consist principally of customer base; $2,428 million from the 2010 Acquisition, $570 million from the Connecticut Acquisition and $2,090 million from the recently completed CTF Acquisition. These customer bases are being amortized on an accelerated method because this method most closely resembles the projected underlying revenue streams. In assigning lives, which range from between eight and 12 years, a separate evaluation and determination is made for residential and business customers.



See Notes 5 and 6 of the Notes to Consolidated Financial Statements for additional discussion.



Asset Impairments

We review long-lived assets to be held and used, including customer lists and long-lived assets to be disposed of for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of the asset to the estimated fair value, which is based on the future undiscounted net cash flows expected to be generated by the asset. Recoverability of assets held for sale is measured by comparing the carrying amount of the assets to their estimated fair market value. If any assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value.  Also, we periodically reassess the useful lives of our tangible and intangible assets to determine whether any changes are required. 



Pension and Other Postretirement Benefits

We sponsor a defined benefit pension plan covering a significant number of our current and former employees as well as other postretirement benefit plans that provide medical, dental, life insurance and other benefits for covered retired employees and their beneficiaries and covered dependents. As of December 31, 2016, the unfunded benefit obligation for these plans recorded on our consolidated balance sheet was $1,625 million. During 2016, we contributed $28 million to these plans and recorded $155 million of expense before capitalization, including $26 million of special termination benefits. Pension and other postretirement benefit costs and obligations are dependent upon various actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of return on plan assets.



Our discount rate assumption is determined annually 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 December 31, 2016 and 2015, we utilized an estimation technique that is based upon a settlement model (Bond:Link) that permits us to closely match cash flows to the expected payments to participants. This rate can change from year-to-year based on market conditions that affect corporate bond yields.



We are utilizing a discount rate of 4.10% as of December 31, 2016 for our qualified pension plan, compared to rates of 4.50% and 4.10% in 2015 and 2014, respectively.  The discount rate for postretirement plans as of December 31, 2016 was a range of 4.10% to 4.30% compared to a range of 4.50% to 4.70% in 2015 and 4.10% to 4.20% in 2014.



In the following table, we show the estimated sensitivity of our pension and other postretirement benefit plan liabilities to a 25 basis point change in the discount rate as of December 31, 2016:



In developing the expected long-term rate of return assumption, we considered published surveys of expected market returns, 10 and 20 year actual returns of various major indices, and our own historical 5 year, 10 year and 20 year investment returns. The expected long-term rate of return on plan assets is based on an asset allocation assumption of 40% in long-duration fixed income securities, and 60% in equity securities and other investments. We review our asset allocation at least annually and make changes when considered appropriate. Our asset return assumption is made at the beginning of our fiscal year.  In 2016, 2015 and 2014, our expected long-term rate of return on plan assets was 7.50%, 7.75% and 7.75%, respectively.  Our actual return on plan assets in 2016 was 10.39%.  For 2017, we will assume a rate of return of 7.50%. Our pension plan assets are valued at fair value as of the measurement date.



For additional information regarding our pension and other postretirement benefits see Note 17 to the Notes to Consolidated Financial Statements.



Income Taxes    

We file a consolidated federal income tax return. We utilize the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recorded for the tax effect of temporary differences between the financial statement basis and the tax basis of assets and liabilities using tax rates expected to be in effect when the temporary differences are expected to reverse. Actual income taxes could vary from these estimates due to future changes in governing law or review by taxing authorities.



We use a “more likely than not” threshold to the recognition and derecognition of uncertain tax positions either taken or expected to be taken in Frontier’s income tax returns. The total amount of our gross tax liability for tax positions that may not be sustained under a “more likely than not” threshold amounts to $17 million as of December 31, 2016 including interest of $1 million. For additional information regarding our accounting for income taxes see Note 12 of the Notes to Consolidated Financial Statements.



Business Combinations

We allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, we identify and attribute values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions about several highly subjective variables, including future cash flows, discount rates, and asset lives. There are also different valuation models for each component, the selection of which requires considerable judgment. Our estimates and assumptions may be based, in part, on the availability of listed market prices or other transparent market data. These determinations will affect the amount of amortization expense recognized in future periods. We base our fair value estimates on assumptions we believe are reasonable, but recognize that the assumptions are inherently uncertain. Depending on the size of the purchase price of a particular acquisition and the mix of intangible assets acquired, the purchase price allocation could be materially impacted by applying a different set of assumptions and estimates. Frontier allocated $9,871 million and  $2,018 million in total consideration to the “fair market value” of the assets and liabilities acquired in the CTF Acquisition and the Connecticut Acquisition, respectively. The estimates of the fair values assigned to property, plant and equipment, customer list and goodwill, are more fully described in Note 3 of the Notes to Consolidated Financial Statements.



Recent Accounting Pronouncements

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



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Item 7A.  Quantitative and Qualitative Disclosures about Market Risk



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



Interest Rate Exposure



Our exposure to market risk for changes in interest rates relates primarily to the interest-bearing portion of our pension investment portfolio and the related actuarial liability for pension obligations, as well as our floating rate indebtedness. As of December 31, 2016, 88% of our long-term debt had fixed interest rates. We had no interest rate swap agreements related to our fixed rate debt in effect at December 31, 2016 and 2015.  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 $2,151 million of our outstanding borrowings at December 31, 2016 have floating interest rates. Our undrawn $750 million revolving credit facility has interest rates that float with the LIBO Rate, as defined. Consequently, we have limited material future earnings or cash flow exposures from changes in interest rates on our debt. An adverse change in interest rates would increase the amount that we pay on our variable rate obligations and could result in fluctuations in the fair value of our fixed rate obligations. Based upon our overall interest rate exposure at December 31, 2016, a near-term change in interest rates would not materially affect our consolidated financial position, results of operations or cash flows.



At December 31, 2016, the fair value of our long-term debt was estimated to be approximately $17.5 billion, based on prevailing interest rates, our overall weighted average borrowing rate of 8.55% and our overall weighted average maturity of approximately eight years. As of December 31, 2016, there has been no significant change in the weighted average maturity applicable to our obligations since December 31, 2015.



Equity Price Exposure



Our exposure to market risks for changes in equity security prices as of December 31, 2016 is limited to our pension plan assets.  We have no other security investments of any significant amount.



Our pension plan assets increased from $1,572 million at December 31, 2015 to $2,766 million at December 31, 2016, an increase of $1,194 million, or 76%. This increase was a result of cash transfers and accounts receivable from Verizon and the Verizon pension plan trusts of $1,125 million related to the CTF Acquisition, positive investment returns of $195 million, net of investment management and administrative fees, and contributions of $28 million, partially offset by benefit payments of $154 million.



Item 8.   Financial Statements and Supplementary Data



The following documents are filed as part of this Report:



1. Financial Statements - See Index on page F-1.



2. Supplementary Data - Quarterly Financial Data is included in the Financial Statements (see 1. above).



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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item 9A.Controls and Procedures



(i)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, December 31, 2016, that our disclosure controls and procedures were effective. 



(ii)  Internal Control Over Financial Reporting

      (a) Management’s annual report on internal control over financial reporting

Our management report on internal control over financial reporting appears on page F-2.

      (b) Report of registered public accounting firm

The report of KPMG LLP, our independent registered public accounting firm, on internal control over financial reporting appears on page F-4.

      (c) Changes in internal control over financial reporting

We reviewed our internal control over financial reporting at December 31, 2016.  There have been no changes in our internal control over financial reporting identified in an evaluation thereof that occurred during the last fiscal quarter of 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





Item 9B.Other Information



None.

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PART III



Item 10.      Directors, Executive Officers and Corporate Governance



Certain of the information required by this Item is incorporated by reference from our definitive proxy statement for the 2017 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2016. 



Executive Officers of the Registrant    



Our Executive Officers as of February 10, 2017 were:



 

There is no family relationship between the directors or executive officers. The term of office of each of the foregoing officers of Frontier is annual and will continue until a successor (if any) has been elected and qualified.



KENNETH A. ARNDT has been with Frontier since 2003 and was appointed Executive Vice President, Commercial Sales Operations, in December 2016.  Mr. Arndt previously had oversight of Frontier’s operations in Connecticut, New York, Ohio, Pennsylvania and West Virginia.  Before joining Frontier, Mr. Arndt served as Vice President of Marketing for Lucent Technologies and Vice President of Sales and Marketing for Commonwealth Telephone Company in Pennsylvania.



DONALD DANIELS joined Frontier in July 2014 as Senior Vice President and Controller. From October 2002 to July 2014 he held various positions with JetBlue Airways Corporation, including Corporate Controller, Chief Accounting Officer, Vice President and Controller, Assistant Controller, and Director of Financial Reporting. Prior to that Mr. Daniels held various positions of increasing responsibility at Delta Air Lines and Deloitte and Touche, LLP. Mr. Daniels is a veteran of the United States Army and a certified public accountant.



STEVE GABLE became Executive Vice President and Chief Technology Officer of Frontier in April 2015.  He joined Frontier in November 2012 as Senior Vice President and Chief Information Officer. Prior to Frontier, Mr. Gable was Executive Vice President/CTO of Tribune Company while also serving as President of Tribune Digital. Before Tribune, Mr. Gable served as Vice President of Technology for Clear Channel Radio.



JOHN J. LASS has been with Frontier since 1980 and was appointed Executive Vice President, Customer Operations, in November 2016.  Previously, Mr. Lass was Executive Vice President, Field Operations.  He has also served as President of Frontier’s Central Region (comprising Illinois, Indiana, Iowa, Michigan, Minnesota and Nebraska), Vice President of Revenue Assurance and as Regional Operations Vice President at Frontier, Vice President and General Manager of Citizens Utilities Vermont Electric Division, and has held operations positions in New York and the Midwest with Frontier, GTE and Contel.



R. PERLEY MCBRIDE became Chief Financial Officer and Executive Vice President of Frontier on November 4, 2016.  Prior to joining Frontier, Mr. McBride was the Chief Financial Officer of Cable & Wireless Communications Plc until its May 2016 acquisition by Liberty Global plc.  Previously, Mr. McBride served as Chief Financial Officer at Leap Wireless International from December 2012 through May 2014 and was part of the Executive team that led the business through its acquisition by AT&T Inc.  Prior to Leap Wireless, he served as Executive Vice President of Finance at The Weather Company, owner of The Weather Channel among other assets, between 2010 and 2012.  He also served in several senior financial management roles at Frontier between 1999 and 2010, and also between 1994 and 1997.



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DANIEL J. McCARTHY has been with Frontier since December 1990 and is the President and Chief Executive Officer.  Prior to becoming President and Chief Executive Officer in April 2015, Mr. McCarthy held other positions of responsibility at Frontier, including President and Chief Operating Officer, from April 2012 to April 2015, Executive Vice President and Chief Operating Officer, from January 2006 to April 2012, and Senior Vice President, Field Operations, from December 2004 to December 2005.  Mr. McCarthy serves as a Trustee of Sacred Heart University in Fairfield, Connecticut, and of Foundations in Education for the Diocese of Bridgeport, Connecticut.  He is a member of the Board of Directors of the Western Connecticut Health Network, the Board of Directors of the Business Council of Fairfield County, and a member of the Business Roundtable.  He is also a director of Constellation Brands, Inc.



CECILIA K. McKENNEY has been with Frontier since February 2006. She is currently Executive Vice President and Chief Customer Officer. Before this, she was Executive Vice President, Frontier Secure and Administration. Previously, she was Executive Vice President, Human Resources and Sales Operations from May 2012 to January 2013, Executive Vice President, Human Resources and Call Center Sales & Service from February 2008 to May 2012 and Senior Vice President, Human Resources from February 2006 to February 2008. Prior to joining Frontier, she was Group Vice President, Headquarters Human Resources, of The Pepsi Bottling Group (PBG) from 2004 to 2005. Previously at PBG Ms. McKenney was Vice President, Headquarters Human Resources from 2000 to 2004.



MARK D. NIELSEN joined Frontier in March 2014 and is Executive Vice President and Chief Legal Officer. Prior to joining Frontier, he was Associate General Counsel and Chief Compliance Officer for Praxair Inc. and Vice President and Assistant General Counsel of Raytheon Company. Before that, Mr. Nielsen served as Chief Legal Counsel, and then Chief of Staff, to Massachusetts Governor Mitt Romney from 2004 to 2007.



TIM TRAVAILLE has been with Frontier since 2010 and is Executive Vice President, Operational Transformation. Previously, he held other positions at Frontier, including Senior Vice President of Integration, Chief Information Officer and General Manager for Frontier in Washington State.



KATHLEEN WESLOCK joined Frontier as Executive Vice President and Chief People Officer in July 2015.  Previously, she had worked as Senior Vice President/Chief Human Resources Officer at Cisco Systems, Inc. and Senior Vice President, Chief Human Resources Officer & Internal Communications, at SunGard Data Systems. She has also worked as Director of Human Resources, Financial Advisory Services, at Deloitte and Director of Global Human Resources at the global law firm Shearman & Sterling.



Item 11.     Executive Compensation



The information required by this Item is incorporated by reference from our definitive proxy statement for the 2017 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2016.



Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

    Matters



The information required by this Item is incorporated by reference from our definitive proxy statement for the 2017 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2016.



Item 13.      Certain Relationships and Related Transactions, and Director Independence



The information required by this Item is incorporated by reference from our definitive proxy statement for the 2017 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2016.



Item 14.      Principal Accountant Fees and Services



The information required by this Item is incorporated by reference from our definitive proxy statement for the 2017 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2016.



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PART IV



Item 15.  Exhibits and Financial Statement Schedules

List of Documents Filed as a Part of This Report:



(1)    Index to Consolidated Financial Statements:



Reports of Independent Registered Public Accounting Firm 



Consolidated Balance Sheets as of December 31, 2016 and 2015



Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 



Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, 2015 and 2014



Consolidated Statements of Equity for the years ended December 31, 2016, 2015 and 2014 



Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 



Notes to Consolidated Financial Statements



All other schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or not required.



(2) Index to Exhibits:



All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by Frontier, file number 001-11001, unless otherwise indicated.









SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 28th day of February 2017.