Docoh
Loading...

FYBR Frontier Communications Parent

Filed: 3 Nov 21, 4:00pm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

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

Picture 1

FRONTIER COMMUNICATIONS PARENT, INC.

(Exact name of registrant as specified in its charter)

Delaware

86-2359749

(State or other jurisdiction of

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

incorporation or organization)

401 Merritt 7

Norwalk, Connecticut

06851

(Address of principal executive offices)

(Zip Code)

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

FYBR

The NASDAQ Stock Market LLC

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

Yes x No ¨

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

Yes x No ¨

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

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

Smaller reporting company x Emerging growth company ¨

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

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

Yes ¨ No x

The number of shares outstanding of the registrant’s Common Stock as of October 29, 2021 was 244,408,000.


FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

Table of Contents

Page

Part I. Financial Information (Unaudited)

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, 2021 (Successor) and December 31, 2020 (Predecessor)

2

Consolidated Statements of Operations for the three months ended September 30, 2021 (Successor), and the three months ended September 30, 2020 (Predecessor)

3

Consolidated Statements of Operations for the five months ended September 30, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), and the nine months ended September 30, 2020 (Predecessor)

4

Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2021 (Successor), and the three months ended September 30, 2020 (Predecessor), and the five months ended September 30, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), and the nine months ended September 30, 2020 (Predecessor)

5

Consolidated Statements of Equity (Deficit) for the five months ended September 30, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), and the nine months ended September 30, 2020 (Predecessor)

6

Consolidated Statements of Cash Flows for the five months ended September 30, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), and the nine months ended September 30, 2020 (Predecessor)

7

Notes to Consolidated Financial Statements

8

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

53

Item 3. Quantitative and Qualitative Disclosures about Market Risk

74

Item 4. Controls and Procedures

75

Part II. Other Information

Item 1. Legal Proceedings

76

Item 1A. Risk Factors

76

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

76

Item 6. Exhibits

77

Signature

78


PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

Successor

Predecessor

September 30, 2021

December 31, 2020

ASSETS

Current assets:

Cash and cash equivalents

$

1,211 

$

1,829 

Accounts receivable, less allowances of $49 and $130, respectively

452 

553 

Contract acquisition costs

-

97 

Prepaid expenses

94 

90 

Income taxes and other current assets

30 

85 

Total current assets

1,787 

2,654 

Property, plant and equipment, net

8,918 

12,931 

Other intangibles, net

4,307 

677 

Other assets

376 

533 

Total assets

$

15,388 

$

16,795 

LIABILITIES AND EQUITY (DEFICIT)

Current liabilities:

Long-term debt due within one year

$

15 

$

5,781 

Accounts payable

583 

540 

Advanced billings

200 

202 

Accrued other taxes

208 

204 

Accrued interest

125 

47 

Pension and other postretirement benefits

48 

48 

Other current liabilities

301 

318 

Total current liabilities

1,480 

7,140 

Deferred income taxes

372 

343 

Pension and other postretirement benefits

1,731 

2,195 

Other liabilities

424 

452 

Long-term debt

6,996 

-

Total liabilities not subject to compromise

11,003 

10,130 

Liabilities subject to compromise

-

11,565 

Total liabilities

11,003 

21,695 

Equity (Deficit):

Successor common stock, $0.01 par value (1,750,000 shares authorized,

244,407 issued and outstanding at September 30, 2021)

-

Predecessor common stock, $0.25 par value (175,000 authorized shares,

106,025 issued, and 104,793 outstanding at December 31, 2020)

-

27 

Additional paid-in capital

4,114 

4,817 

Retained earnings (deficit)

225 

(8,975)

Accumulated other comprehensive income (loss), net of tax

44 

(755)

Treasury common stock

-

(14)

Total equity (deficit)

4,385 

(4,900)

Total liabilities and equity (deficit)

$

15,388 

$

16,795 

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


2


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

2021

2020

Revenue

$

1,576 

$

1,726 

Operating expenses:

Network access expenses

177 

226 

Network related expenses

413 

431 

Selling, general and administrative expenses

421 

404 

Depreciation and amortization

273 

392 

Restructuring costs and other charges

Total operating expenses

1,292 

1,456 

Operating income

284 

270 

Investment and other loss, net

(37)

(14)

Reorganization items, net

-

(131)

Interest expense (See note 3)

(90)

(121)

Income before income taxes

157 

Income tax (benefit) expense

31 

(11)

Net income

126 

15 

Basic net earnings per share

attributable to Frontier common shareholders

$

0.52 

$

0.14 

Diluted net earnings per share

attributable to Frontier common shareholders

$

0.51 

$

0.14 

Total weighted average shares outstanding - basic

244,403 

104,526 

Total weighted average shares outstanding - diluted

245,667 

104,866 

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


3


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

2021

2021

2020

Revenue

$

2,637 

$

2,231 

$

5,460 

Operating expenses:

Network access expenses

304 

264 

767 

Network related expenses

682 

566 

1,305 

Selling, general and administrative expenses

690 

537 

1,255 

Depreciation and amortization

452 

506 

1,204 

Loss on disposal of Northwest Operations

-

-

160 

Restructuring costs and other charges

19 

87 

Total operating expenses

2,147 

1,880 

4,778 

Operating income

490 

351 

682 

Investment and other income (loss), net

(39)

(29)

Pension settlement costs

-

-

(159)

Reorganization items, net

-

4,171 

(273)

Interest expense (See note 3)

(152)

(118)

(664)

-

Income (Loss) before income taxes

299 

4,405 

(443)

Income tax (benefit) expense

74 

(136)

(91)

-

Net income (loss)

225 

4,541 

(352)

Basic net earnings (loss) per share

attributable to Frontier common shareholders

$

0.92 

$

43.42 

$

(3.37)

Diluted net earnings (loss) per share

attributable to Frontier common shareholders

$

0.92 

$

43.28 

$

(3.37)

Total weighted average shares outstanding - basic

244,402 

104,584 

104,460 

Total weighted average shares outstanding - diluted

245,600 

104,924 

104,460 

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


4


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

($ in millions)

(Unaudited)

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

2021

2020

Net income

$

126 

$

15 

Other comprehensive income, net of tax

155 

Comprehensive income

$

129 

$

170 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

2021

2021

2020

Net income (loss)

$

225 

$

4,541 

$

(352)

Other comprehensive income (loss), net of tax

44 

359 

(182)

Comprehensive income (loss)

$

269 

$

4,900 

$

(534)

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


5


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

($ in millions and shares in thousands)

(Unaudited)

Accumulated

Additional

Retained

Other

Treasury

Total

Common Stock

Paid-In

Earnings

Comprehensive

Common Stock

Equity

Shares

Amount

Capital

(Deficit)

Income (Loss)

Shares

Amount

(Deficit)

Balance at January 1, 2021

106,025

$

27

$

4,817

$

(8,975)

$

(755)

(1,232)

$

(14)

$

(4,900)

Stock plans

-

-

-

-

-

(122)

(1)

(1)

Net income

-

-

-

60

-

-

-

60

Other comprehensive

income, net of tax

-

-

-

-

11

-

-

11

Balance at

March 31, 2021 (Predecessor)

106,025

27

4,817

(8,915)

(744)

(1,354)

(15)

(4,830)

Stock plans

-

-

1

-

-

-

-

1

Net income

-

-

-

4,481

-

-

-

4,481

Other comprehensive

income, net of tax

-

-

-

-

348

-

-

348

Cancellation of Predecessor equity

(106,025)

(27)

(4,818)

4,434

396

1,354

15

-

Issuance of Successor common stock

244,401

2

4,106

-

-

-

-

4,108

Balance at

April 30, 2021 (Predecessor)

244,401

$

2

$

4,106

$

-

$

-

-

$

-

$

4,108

Balance at

April 30, 2021 (Successor)

244,401

$

2

$

4,106

$

-

$

-

-

$

-

$

4,108

Stock plans

-

-

-

-

-

-

-

-

Net income

-

-

-

99

-

-

-

99

Other comprehensive

loss, net of tax

-

-

-

-

41

-

-

41

Balance at

June 30, 2021 (Successor)

244,401

$

2

$

4,106

$

99

$

41

-

$

-

$

4,248

Stock plans

6

-

8

-

-

-

-

8

Net income

-

-

-

126

-

-

-

126

Other comprehensive

loss, net of tax

-

-

-

-

3

-

-

3

Balance at September 30, 2021 (Successor)

244,407

$

2

$

4,114

$

225

$

44

-

$

-

$

4,385

For the nine months ended September 30, 2020

Accumulated

Additional

Other

Treasury

Common Stock

Paid-In

Accumulated

Comprehensive

Common Stock

Total

Shares

Amount

Capital

Deficit

Loss

Shares

Amount

Equity

Balance at January 1, 2020

106,025

$

27

$

4,815

$

(8,573)

$

(650)

(894)

$

(13)

$

(4,394)

Stock plans

-

-

1

-

-

(143)

-

1

Net loss

-

-

-

(186)

-

-

-

(186)

Other comprehensive

income, net of tax

-

-

-

-

86

-

-

86

Balance at March 31, 2020

106,025

27

4,816

(8,759)

(564)

(1,037)

(13)

(4,493)

Stock plans

-

-

-

-

-

(77)

-

-

Net loss

-

-

-

(181)

-

-

-

(181)

Other comprehensive

income, net of tax

-

-

-

-

(423)

-

-

(423)

Balance at June 30, 2020

106,025

$

27

$

4,816

$

(8,940)

$

(987)

(1,114)

$

(13)

$

(5,097)

Stock plans

-

-

2

-

-

(118)

(1)

1

Net loss

-

-

-

15

-

-

-

15

Other comprehensive

income, net of tax

-

-

-

-

155

-

-

155

Balance at

September 30, 2020

106,025

$

27

$

4,818

$

(8,925)

$

(832)

(1,232)

$

(14)

$

(4,926)

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

6


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

Successor

Predecessor

For the

For the

For the

five months

four months

nine months

ended September 30,

ended April 30,

ended September 30,

2021

2021

2020

Cash flows provided from (used by) operating activities:

Net income (loss)

$

225 

$

4,541 

$

(352)

Adjustments to reconcile net income (loss) to net cash

provided from (used by) operating activities:

Depreciation and amortization

452 

506 

1,204 

Pension settlement costs

-

-

159 

Stock-based compensation expense

(1)

Amortization of deferred financing costs

-

-

13 

Non-cash reorganization items, net

-

(5,467)

85 

Other adjustments

(11)

Deferred income taxes

68 

(148)

(100)

Loss on disposal of Northwest Operations

-

-

160 

Change in accounts receivable

65 

36 

63 

Change in accounts payable and other liabilities

149 

(168)

334 

Change in prepaid expenses, income taxes and other assets

27 

46 

(80)

Net cash provided from (used by) operating activities

983 

(654)

1,492 

Cash flows provided from (used by) investing activities:

Capital expenditures

(646)

(500)

(825)

Proceeds from sale of Northwest Operations

-

-

1,131 

Proceeds on sale of assets

-

Other

Net cash provided from (used by) investing activities

(645)

(490)

315 

Cash flows provided from (used by) financing activities:

Long-term debt principal payments

(8)

(1)

(5)

Proceeds from long-term debt borrowings

-

225 

-

Repayment of revolving debt

-

-

(749)

Financing costs paid

-

(4)

(19)

Finance lease obligation payments

(9)

(7)

(18)

Other

-

(16)

-

Net cash provided from (used by) financing activities

(17)

197 

(791)

Increase (Decrease) in cash, cash equivalents, and restricted cash

321 

(947)

1,016 

Cash, cash equivalents, and restricted cash

at the beginning of the period

940 

1,887 

809 

Cash, cash equivalents, and restricted cash at the end of the period

$

1,261 

$

940 

$

1,825 

Supplemental cash flow information:

Cash paid during the period for:

Interest

$

121 

$

84 

$

548 

Income tax payments, net

$

27 

$

$

Reorganization items, net

$

-

$

1,397 

$

134 

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

7


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(1) Summary of Significant Accounting Policies:

a) Basis of Presentation and Use of Estimates:

Frontier Communications Parent, Inc. and its subsidiaries are referred to as “we,” “us,” “our,” “Frontier,” or the “Company” in this report. Our interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. All significant intercompany balances and transactions have been eliminated in consolidation. These interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring accruals) considered necessary, in the opinion of Frontier’s management, to present fairly the results for the interim periods shown. Revenues, net income (loss) and cash flows for any interim periods are not necessarily indicative of results that may be expected for the full year.

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

For our interim financial statements as of and for the period ended September 30, 2021, we evaluated subsequent events and transactions for potential recognition or disclosure through the date that we filed this Form 10-Q with the Securities and Exchange Commission (SEC).

The preparation of our interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the disclosure of contingent assets and liabilities, and (iii) the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Estimates and judgments are used when accounting for the application of fresh start accounting, allowance for credit losses, asset impairments, indefinite-lived intangibles, depreciation and amortization, income taxes, and pension and other postretirement benefits, among others. For information about our use of estimates as a result of fresh start accounting, see Note 4.

Chapter 11 Bankruptcy Emergence

On April 14, 2020 (the “Petition Date”), Frontier Communications Corporation, a Delaware corporation (“Old Frontier”), and its subsidiaries (collectively with Old Frontier, the “Debtors”), commenced cases under chapter 11 (the “Chapter 11 Cases”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On August 27, 2020, the Bankruptcy Court confirmed the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan” or the “Plan of Reorganization”), which was filed with the Bankruptcy Court on August 21, 2020, and on April 30, 2021 (the “Effective Date”), the Debtors satisfied the conditions precedent to consummation of the Plan as set forth in the Plan, and the Debtors emerged from the Chapter 11 Cases without any need for further action or order of the Bankruptcy Court. See Note 3 for additional information related to our emergence from Chapter 11 Cases.

Fresh Start Accounting

Upon emergence from bankruptcy, we adopted fresh start accounting in accordance with Accounting Standards Codification (ASC) Topic 852 – Reorganizations (ASC 852) and became a new entity for financial reporting purposes. As a result, the consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements on or before that date as indicated by the “black line” division in the financial statements and footnote tables, which emphasizes the lack of comparability between amounts presented. References to “Successor” relate to our financial position and results of operations after the Effective Date. References to “Predecessor” refer to the financial position and results

8


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

of operations of Old Frontier and its subsidiaries on or before the Effective Date. See Note 4 for additional information related to fresh start accounting.

During the Predecessor period, ASC 852 was applied in preparing the consolidated financial statements. ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. ASC 852 requires certain additional reporting for financial statements prepared between the bankruptcy filing date and the date of emergence from bankruptcy, including: (i) Reclassification of pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the liabilities are fully secured, to a separate line item on the consolidated balance sheet called, "Liabilities subject to compromise"; and (ii) Segregation of “Reorganization items, net” as a separate line on the consolidated statements of comprehensive loss, included within income from continuing operations.

Upon application of fresh start accounting, we allocated the reorganization value to our individual assets and liabilities, except for deferred income taxes, based on their estimated fair values in conformity with ASC Topic 805, Business Combinations. The amount of deferred taxes was determined in accordance with ASC Topic 740, Income Taxes. The Effective Date fair values of our assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets, see Note 4.

b)Changes in Accounting Policies:

The accounting policy differences between Predecessor and Successor include:

Universal Service Fund and Other Surcharges - Frontier collects various taxes, Universal Service Fund (USF) surcharges (primarily federal USF), and certain other taxes, from its customers and subsequently remits them to governmental authorities. The Predecessor recorded USF and other taxes on a gross basis on the consolidated statement of operations, included within “Revenue” and “Network access expense”. After emergence, the Successor records these USF and other taxes on a net basis.

Provision for Bad Debt – The Predecessor reported the provision for bad debt as a reduction of revenue. After emergence, the Successor reports bad debt expense as an operating expense included in “Selling, general, and administrative expenses”.

Contract Acquisition Costs - During the Predecessor period, certain commissions to obtain new customers were deferred and amortized over four years, which represented the estimated customer contract period. As a result of fresh start accounting, that assumption was reevaluated and the period of benefit for our retail customers was determined to be less than one year. As such, these costs are now expensed as incurred.

Actuarial Losses on Defined Benefit Plans - Historically, actuarial gains (losses) were recognized as they occurred and included in “Accumulated other comprehensive income (loss)”, and were subject to amortization over the estimated average remaining service period of participants. As part of fresh start accounting, Frontier has made an accounting policy election to recognize these gains and losses immediately in the period they occur as Investment and other income (loss) on the consolidated statement of operations.

Government Grants Revenue - Certain governmental grants that were historically presented on a net basis as part of capital expenditures, are now presented on a gross basis and included in ”Revenue” on the consolidated statement of operations.

9


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Administrative Expenses – Historically, the Predecessor capitalized certain administrative expenses, that following emergence, are expensed during the period incurred and included in “Selling, general, and administrative expense” on the consolidated statement of operations.

c) Going Concern:

In accordance with the requirements of Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements Going Concern (ASU 2014-15)”, and ASC 205, “Presentation of Financial Statements”, the Company has the responsibility to evaluate at each reporting period, including interim periods, whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations. In its evaluation for this report, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due within one year following the date of issuance of this Quarterly Report on Form 10-Q.

During the pendency of the Chapter 11 Cases, the Predecessor’s ability to continue as a going concern was contingent upon a variety of factors, including the Bankruptcy Court’s approval of the Plan and the Predecessor’s ability to successfully implement the Plan. As a result of the effectiveness of the Plan, the Company believes it has the ability to meet its obligations for at least one year from the date of issuance of this Form 10-Q. Accordingly, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course business.

d) Impact of COVID-19:

The 2019 novel coronavirus (“COVID-19”) and measures taken to prevent its spread across the globe have impacted our business in several ways. While overall the operational and financial impacts to Frontier of the COVID-19 pandemic as of September 30, 2021 were not significant, we continue to closely monitor the evolution of the pandemic, including new COVID-19 variants, as well as the ongoing impact to our employees, our customers, our suppliers and our results of operations.

In an effort to reduce the economic impacts of COVID-19, the United States federal government has responded with multiple stimulus bills. In addition, some of the states we operate in have issued executive orders as a result of COVID-19 that further impact our business. State and federal governments and health authorities, may continue to recommend or mandate measures that could impact our operations.

Frontier’s response to COVID-19 has included comprehensive operational safety precautions for our employees and customers. To date, we have not experienced significant disruptions in our workforce due to COVID-19 related absences or legislative or regulatory changes. As a federal contractor of the U.S. government, we are required to comply with the recent executive order mandating employees be fully vaccinated by the required dates. We have implemented a program for our non-union employees to facilitate compliance with these requirements.

Through September 30, 2021, we have not experienced any material disruptions in our supply chain. However, the challenges and continuing uncertainty of the COVID-19 pandemic could result in further impacts to our business and operations, such as disruptions in our supply chain, inflation in pricing for key materials or labor, or other adverse changes. We continue to closely track our customers’ payment activity as well as external factors which could materially impact payment trends. With more people working from home, we have experienced higher demands on our network and higher sales activity for our consumer broadband service offering. This sustained increase in network demand could lead to reduced network availability and potential outages, which may impair our ability to meet customer service level commitments, lead to higher costs, higher customer churn and potential increased regulatory actions. These potential changes, among others, could have a material financial impact to Frontier.

10


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

e) Revenue Recognition:

Revenue for data & Internet services, voice services, video services and switched and non-switched access services is recognized as services are provided to customers. Services that are billed in advance include monthly recurring network access services (including data services), special access services, and monthly recurring voice, video, and related charges. Revenue is recognized by measuring progress toward the complete satisfaction of the Company’s performance obligations. The unearned portion of these fees is deferred as a component of “Advanced billings” on our consolidated balance sheet and recognized as revenue over the period that the services are provided. Services that are billed in arrears include non-recurring network access services (including data services), switched access services, and non-recurring voice and video services. The earned but unbilled portion of these fees is recognized as revenue in our consolidated statements of operations and accrued in “Accounts receivable” on our consolidated balance sheet in the period that services are provided. Excise taxes are recognized as a liability when billed.

Satisfaction of Performance Obligations

Frontier satisfies its obligations to customers by transferring goods and services in exchange for consideration received from the customer. The timing of Frontier’s satisfaction of the performance obligation may differ from the timing of the customer’s payment.

Bundled Service and Allocation of Discounts

When customers purchase more than one service, revenue for each is determined by allocating the total transaction price based upon the relative stand-alone selling price of each service. We frequently offer service discounts as an incentive to customers, which reduce the total transaction price. Any incentives which are considered cash equivalents (e.g. gift cards) that are granted will similarly result in a reduction of the total transaction price. Cash equivalent incentives are accounted for on a portfolio basis and are recognized in the month they are awarded to customers.

Customer Incentives

In the process of acquiring and/or retaining customers, we may issue a variety of incentives aside from service discounts or cash equivalent incentives. Those incentives that have stand-alone value (e.g. gift cards not considered cash equivalents or free goods/services) are considered separate performance obligations. While these incentives are free to the customer, a portion of the consideration received from the customer is ascribed to them based upon their relative stand-alone selling price. These types of incentives are accounted for on a portfolio basis with both revenue and expense recognized in the month they are awarded to the customer. The earned revenue associated with these incentives is reflected in “Other” revenue while the associated costs are reflected in “Network access expenses”.

Upfront Fees

All non-refundable upfront fees assessed to our customers provide them with a material right to renew; therefore, they are deferred by creating a contract liability and amortized into “Data and Internet service” for fees charged to our wholesale customers and “Other revenue” for fees charged to all other customers over the average customer life using a portfolio approach.

Customer Acquisition Costs

Sales commission expenses are recognized as incurred. According to ASC 606, incremental costs in obtaining a contract with a customer are deferred and recorded as a contract asset if the period of benefit is expected to be greater than one year. For our retail customers, this period of benefit has been determined to be less than one year. As such, the Company applies the practical expedient that allows such costs to be expensed as incurred.

11


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Taxes, Surcharges and Subsidies

Frontier collects various taxes, Universal Service Fund (USF) surcharges (primarily federal USF), and certain other surcharges, from its customers and subsequently remits these taxes to governmental authorities. During the predecessor period, USF and other surcharges amounted to $83 million for the four months ended April 30, 2021, and $58 million and $165 million for the three and nine months ended September 30, 2020.

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

f)Cash Equivalents:

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash of $17 million is included in “Other current assets” as of September 30, 2021 and $33 million and $58 million are included in “Other assets” on our consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

g)Definite and Indefinite Lived Intangible Assets:

Intangible assets are initially recorded at estimated fair value. Frontier historically amortized its acquired customer lists and certain other finite-lived intangible assets over their estimated useful lives on an accelerated basis. Upon emergence from bankruptcy, customer relationship intangibles were established for business and wholesale customers. These intangibles are amortized on a straight-line basis over their assigned useful life of between 11 and 16 years. Additionally, trademark and tradename assets established upon emergence are amortized on a straight-line basis over 5 years. We review such intangible assets to assess whether any potential impairment exists and whether factors exist that would necessitate a change in useful life and a different amortization period.

h)Lease Accounting:

We determine if an arrangement contains a lease at inception. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating and Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating and finance lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms used in accounting for leases may reflect options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term. ROU assets for operating leases are recorded to “Other Assets”, and the related liabilities recorded to “Other current liabilities”, and “Other liabilities” on our consolidated balance sheets. Assets subject to finance leases are included in “Property, Plant & Equipment”, with corresponding liabilities recorded to “Other current liabilities”, and “Other liabilities” on our consolidated balance sheets. Upon emergence from bankruptcy, lease asset and liability balances were adjusted to fair value.

12


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(2) Recent Accounting Literature:

Recently Adopted Accounting Pronouncements

Financial Instrument Credit Losses

In June 2016, The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments – Credit Losses” (CECL or ASU 2016-13). This standard, along with its amendments, update the current financial statement impairment model requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. For the Company, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. Upon emergence from the Chapter 11 Cases, effective as of April 30, 2021, Frontier adopted the standard as part of its fresh start accounting policy changes. The adoption of CECL did not result in a material impact to our financial position or results of operations.

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting". This standard provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. The standard applies to contracts and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. Frontier is evaluating the impact of the adoption of this standard, including optional expedients, on our consolidated financial statements.

(3) Emergence from the Chapter 11 Cases:

On April 14, 2020, the Debtors commenced the Chapter 11 Cases in Bankruptcy Court. The Chapter 11 Cases were jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476 (RDD).

On May 15, 2020, the Debtors filed a proposed Joint Plan of Reorganization and related Disclosure Statement, each of which were amended on June 26, 2020, June 29, 2020 and June 30, 2020. On May 15, 2020, the Debtors also filed a proposed order approving the Disclosure Statement and various plan solicitation materials, including the solicitation and voting procedures, which were revised on June 29, 2020 (including modifications to some of the exhibits). On June 30, 2020, the Bankruptcy Court entered the modified order approving the adequacy of the Disclosure Statement and the solicitation and notice procedures and the forms of voting ballots and notices in connection therewith. The order established June 29, 2020 as the voting record date, July 2, 2020 as the solicitation launch date and July 31, 2020 as the voting deadline. On August 21, 2020, the Debtors filed the Plan with the Bankruptcy Court. On August 27, 2020, the Bankruptcy Court entered the Order Confirming the Plan (the “Confirmation Order”).

On the Effective Date, the Debtors satisfied all conditions precedent required for consummation of the Plan as set forth in the Plan, the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases without any need for further action or order of the Bankruptcy Court.

On the Effective Date, pursuant to the terms of the Plan, all of the obligations under Old Frontier’s unsecured senior note indentures were cancelled, and in connection with emergence, Frontier issued 244,401,000 shares of common stock that were transferred to holders of the allowed senior notes claims (as defined by the Plan) and the Restructuring Support Agreement was automatically terminated.

13


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Reorganization items incurred as a result of the Chapter 11 Cases presented separately in the accompanying consolidated statements of operations were as follows:

Predecessor

For the four months

For the nine months

ended April 30,

ended September 30,

($ in millions)

2021

2020

Gain on settlement of liabilities subject to compromise

$

5,274 

$

-

Fresh start valuation adjustments

(1,038)

-

Write-off of debt issuance costs and

original issue net discount on debt subject to compromise

-

(85)

Debtor-in-possession financing costs

(15)

(19)

Professional fees and other bankruptcy related costs

(50)

(169)

Reorganization items, net

$

4,171 

$

(273)

The Company incurred significant costs associated with the reorganization, primarily legal and professional fees. Subsequent to the Petition Date, these costs were expensed as incurred and significantly affected our consolidated results of operations. From the Petition Date to the Effective date, these costs were included in Reorganization items, net on our consolidated statement of operations. For the periods prior to the Petition date and following the Effective Date, these costs were included in Restructuring costs and other charges on our consolidated statement of operations. Refer to Note 12.

(4) Fresh Start Accounting:

In connection with our emergence from bankruptcy and in accordance with ASC Topic 852, we qualified for and adopted fresh start accounting on the Effective Date. We were required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor, and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims.

The adoption of fresh start accounting resulted in a new reporting entity for financial reporting purposes with no beginning retained earnings or deficit. The cancellation of all outstanding shares of Old Frontier common stock on the Effective Date and issuance of new shares of common stock of the Successor caused a related change of control of the Company under ASC 852.

Upon the application of fresh start accounting, Frontier allocated the reorganization value to its individual assets based on their estimated fair values. Each asset and liability existing as of the Effective Date, other than deferred taxes, have been stated at the fair value, and determined at appropriate risk-adjusted interest rates. Deferred taxes were determined in conformity with applicable accounting standards.

Reorganization value represents the fair value of the Successor’s assets before considering liabilities. Our reorganization value is derived from an estimate of enterprise value. Enterprise value represents the estimated fair value of an entity’s long-term debt and shareholders’ equity. In support of the Plan, the enterprise value of the Successor was estimated to be approximately $12.5 billion. The valuation analysis was prepared using financial information and financial projections and applying standard valuation techniques, including a risked net asset value analysis.

The Effective Date estimated fair values of certain of the Company's assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets. As a result of the application of fresh

14


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

start accounting and the effects of the implementation of the Plan, the Company’s consolidated financial statements after April 30, 2021 are not comparable to the Company’s consolidated financial statements as of or prior to that date.

Reorganization Value

As set forth in the Plan of Reorganization, the enterprise value of the Successor Company was estimated to be between $10.5 billion and $12.5 billion. Based on the estimates and assumptions discussed below, the Company estimated the enterprise value to be $12.5 billion as of the Effective Date. The Company based their enterprise value on projections which included higher capital expenditures to enhance the network and would result in higher revenue and Earnings before interest, taxes, depreciation, and amortization (“EBITDA”).

Management, with the assistance of its valuation advisors, estimated the enterprise value (“EV”) of the Successor Company, which was approved by the Bankruptcy Court, using various valuation methodologies, including a Discounted Cash Flow analysis (DCF), the Guideline Public Company Method (GPCM), and the Guideline Transaction Method (GTM). Under the DCF analysis, the enterprise value was estimated by discounting the projections’ unlevered free cash flow by the Weighted Average Cost of Capital (WACC), the Company’s estimated rate of return. A terminal value was estimated by applying a Gordon Growth Model to the normalized level of cash flows in the terminal period. The Gordon Growth Model was based on the WACC and the perpetual growth rate, and the terminal value was added back to the discounted cash flows.

Under the GPCM, the Company’s enterprise value was estimated by performing an analysis of publicly traded companies that operate in a similar industry. A range of Enterprise Value / EBITDA (EV/EBITDA) multiples were selected based on the financial and operating attributes of Frontier relative to the comparable publicly traded companies. The selected range of multiples were applied to the Company’s forecasted EBITDA to estimate the enterprise value of the Company.

The GTM approach is similar to the GPCM, in that it relies on EV/EBITDA multiples but rather than of publicly traded companies, the multiples are based on precedent transactions. A range of multiples was derived by analyzing the operating and financial attributes of the acquired companies and the implied EV/EBITDA multiples. This range of multiples were then applied to the forecasted EBITDA of the Company to arrive an enterprise value.

The following table reconciles the enterprise value to the estimated fair value of the Successor common stock as of the Effective Date:

($ in millions and shares in thousands, except per share data)

Enterprise value

$

12,500 

Plus: Cash and cash equivalents and restricted cash

940 

Less: Fair value of debt and other liabilities

(7,267)

Less: Pension and other postretirement benefits

(1,774)

Less: Deferred tax liability

(291)

Fair value of Successor stockholders’ equity

$

4,108 

Shares issued upon emergence

244,401 

Per share value

$

17 

15


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The reconciliation of the Company’s enterprise value to reorganization value as of the Effective Date is as follows:

($ in millions)

Enterprise value

$

12,500 

Plus: Cash and cash equivalents and restricted cash

940 

Plus: Current liabilities (excluding debt, finance leases, and non-operating liabilities)

1,179 

Plus: Long term liabilities (excluding debt, finance leases, deferred tax liability)

307 

Reorganization value

$

14,926 

The adjustments set forth in the following unaudited Consolidated Balance Sheet reflect the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”).

16


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The following table reflects the preliminary reorganization and application of ASC 852 on our consolidated balance sheet as of April 30, 2021:

(Unaudited)

(Unaudited)

($ in millions)

Predecessor

Reorganization

Fresh Start

Successor

April 30, 2021

Adjustments

Adjustments

April 30, 2021

ASSETS

Current assets:

Cash and cash equivalents

$

2,059

$

(1,169)

(1)

$

-

$

890

Accounts receivable, net

516

-

-

516

Contract acquisition costs

91

-

(91)

(8)

-

Prepaid expenses

92

-

-

92

Income taxes and other current assets

45

-

(3)

(8)

42

Total current assets

2,803

(1,169)

(94)

1,540

Property, plant and equipment, net

13,020

-

(4,473)

(9)

8,547

Other intangibles, net

578

-

3,863

(10)

4,441

Other assets

526

(8)

(1)

(120)

(8)(11)

398

Total assets

$

16,927

$

(1,177)

$

(824)

$

14,926

LIABILITIES AND EQUITY (DEFICIT)

Current liabilities:

Long-term debt due within one year

$

5,782

$

(5,767)

(3)

$

-

$

15

Accounts payable

518

(6)

(2)

-

512

Advanced billings

208

-

-

208

Accrued other taxes

185

-

-

185

Accrued interest

81

(1)

(2)

-

80

Pension and other postretirement benefits

48

-

-

48

Other current liabilities

309

53

(2)

(36)

(11)

326

Total current liabilities

7,131

(5,721)

(36)

1,374

Deferred income taxes

389

70

(14)

(168)

(14)

291

Pension and other postretirement benefits

2,163

-

(437)

(13)

1,726

Other liabilities

440

-

(28)

(11)

412

Long-term debt

-

6,738

(3)

277

(12)

7,015

Total liabilities not subject to compromise

10,123

1,087

(392)

10,818

Liabilities subject to compromise

11,570

(11,570)

(7)

-

-

Total liabilities

21,693

(10,483)

(392)

10,818

Equity (Deficit):

Shareholders' equity of Frontier:

Successor common stock

-

2

(5)

-

2

Predecessor common stock

27

(27)

(4)

-

-

Successor additional paid-in capital

-

4,106

(5)

-

4,106

Predecessor additional paid-in capital

4,818

(4,818)

(4)

-

-

Retained earnings (deficit)

(8,855)

10,028

(6)

(1,173)

(15)

-

Accumulated other comprehensive income (loss), net of tax

(741)

-

741

(16)

-

Treasury common stock

(15)

15

(4)

-

-

Total equity (deficit)

(4,766)

9,306

(432)

4,108

Total liabilities and equity (deficit)

$

16,927

$

(1,177)

$

(824)

$

14,926


17


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Reorganization Adjustments

In accordance with the Plan of Reorganization, the following adjustments were made:

(1) Reflects net cash payments as of the Effective Date from implementation of the Plan as follows:

($ in millions)

Sources:

Net proceeds from Incremental Exit Term Loan Facility

$

220 

Release of restricted cash from other assets to cash

Total sources

228 

Uses:

Payments of Excess to Unsecured senior notes holders

(1,313)

Payments of pre-petition accounts payable and contract cure payments

(62)

Payments of professional fees and other bankruptcy related costs

(22)

Total uses

(1,397)

Net uses of cash

$

(1,169)

(2) Reflects the reinstatement of accounts payable and accrued expenses upon emergence, as well as payments made on the Effective Date.

(3) Reflects the conversion of our DIP-to-Exit term loan facility, DIP-to-Exit First Lien Notes, and DIP-to-Exit Second Lien Notes. Also represent the reclassification of the debt from current liabilities during bankruptcy to non-current liabilities based on the maturity of the debt recorded by the Company.

(4) Reflects the cancellation of Predecessor common stock, additional paid in capital and treasury stock.

(5) Reflects the issuance of Successor common stock and additional paid in capital to the unsecured senior note holders.

(6) Reflects the cumulative impact of reorganization adjustments.

($ in millions)

Gain on settlement of Liabilities Subject to Compromise

$

5,274 

Cancellation of Predecessor equity

4,754 

Net impact on accumulated deficit

$

10,028 

18


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(7) As part of the Plan of Reorganization, the Bankruptcy Court approved the settlement of claims reported within Liabilities subject to compromise in the Company’s Consolidated balance sheet at their respective allowed claim amounts.

The table below indicates the disposition of Liabilities subject to compromise:

($ in millions)

Liabilities subject to compromise pre-emergence

$

11,570 

Reinstated on the Effective Date:

Accounts payable

(66)

Other current liabilities

(59)

Less: total liabilities reinstated

(125)

Amounts settled per the Plan of Reorganization

Issuance of take back debt

(750)

Payment for settlement of unsecured senior noteholders

(1,313)

Equity issued at emergence to unsecured senior noteholders

(4,108)

Total amounts settled

(6,171)

Gain on settlement of Liabilities Subject to Compromise

$

5,274 

Fresh Start Adjustments

In accordance with the application of fresh start accounting, the following adjustments were made:

(8)Reflects unamortized deferred commissions paid to acquire new customers that are eliminated upon emergence as this is not a probable future benefit for the Successor. Costs to obtain customers have been reflected as part of intangible assets. Adjustment also reflects the elimination of certain contract assets and contract liabilities.

(9)Property Plant & Equipment – Reflects the decrease in net book value of property and equipment to the estimated fair value as of the Effective Date.

Personal property valued consisted of outside and inside plant network equipment, computers and software, vehicles, office furniture, fixtures and equipment, computers and software, and construction-in-progress. The fair value of our personal property was estimated using the cost approach, while the income approach was considered to assess economic sufficiency to support asset values. As a part of the valuation process, the third-party advisors’ diligence procedures included using internal data to identify and value assets.

Real property valued consisted of land, buildings, and leasehold improvements. The fair value was estimated using the cost approach and sales comparison (market) approach, with consideration of economic sufficiency to support certain asset values.

19


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The following table summarizes the components of property and equipment, net as of April 30, 2021, and the fair value as of the Effective Date:

Predecessor

Fair Value

Successor

($ in millions)

Historical Value

Adjustment

Fair Value

Land

$

209 

$

40 

$

249 

Buildings and leasehold improvements

2,134 

(958)

1,176 

General support

1,635 

(1,462)

173 

Central office/electronic circuit equipment

8,333 

(7,364)

969 

Poles

1,359 

(843)

516 

Cable, fiber and wire

11,824 

(8,755)

3,069 

Conduit

1,611 

(282)

1,329 

Construction work in progress

1,048 

18 

1,066 

Property, plant and equipment

$

28,153 

$

(19,606)

$

8,547 

Less: Accumulated depreciation

(15,133)

15,133 

-

Property, plant and equipment, net

$

13,020 

$

(4,473)

$

8,547 

(10)Reflects the fair value adjustment to recognize trademark, trade name and customer relationship.

For purposes of estimating the fair values of customer relationships, the Company utilized an Income Approach, specifically, the Multi-Period Excess Earnings method, or MPEEM. The MPEEM estimates fair value based on the present value of the incremental after-tax cash flows attributable only to the subject intangible assets after deducting contributory asset charges. The cash flows attributable to the customer relationships were adjusted for contributory asset charges related to the working capital, fixed assets, trade name/trademarks and assembled workforce. The discount rate utilized to present-value the after-tax cash flows was based on the overall weighted cost of capital of the Company as well as the asset specific risks of the intangible assets.

For purposes of estimating the fair value of trademarks and tradenames, an Income approach was used, specifically, the Relief from Royalty Method. The estimated royalty rates were historical third-party transactions regarding the licensing of similar type of assets as well as a review of historical assumptions used in prior transactions. The selected royalty rates were applied to the revenue generated by the trademarks and tradenames to determine the amount of royalty payments saved as a result of owning these assets. The forecasted cash flows were based on the Company’s projected revenues and the resulting royalty savings were discounted using a rate based on the overall weighted cost of capital of the Company as well as the asset specific risks of the intangible assets.

(11)Reflects the fair value adjustment to the right of use assets and lease liabilities. Upon application of fresh start accounting, the Company revalued its right-of-use assets and lease liabilities using the incremental borrowing rate applicable to the Company after emergence from bankruptcy and commensurate with its new capital structure. In addition, the Company decreased the right-of-use assets to recognize $4 million related to the unfavorable lease contracts.

(12)Reflects the fair value adjustment to adjust Long-term debt as of the Effective Date. This adjustment is to state the Company's debt at estimated fair values.

(13)Reflects a remeasurement of pension and Other Postretirement Benefits related accounts as part of fresh start accounting considerations at emergence.

20


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(14)Reflects the impact of fresh start adjustments on deferred taxes. Frontier purchased the assets, including the stock of subsidiaries, of Frontier Communications Corporation (“Predecessor’s Parent”) at the time of emergence. The Predecessor’s Parent’s federal and state net operating loss carryforwards are expected to have been utilized as a result of the taxable gain realized upon emergence. To the extent not utilized to offset taxable gain, such net operating loss carryforwards are expected to be reduced in accordance with Section 108 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). As part of the taxable purchase, elections were made under Code section 338(h)(10) to step up the value of assets in certain subsidiaries to fair market value. All other subsidiaries carried over their deferred taxes. The adjustments reflect a $1.5 billion reduction in deferred tax assets for federal and state net operating loss carryforwards, a reduction in valuation allowance and a reduction in deferred tax liabilities.

(15)Reflects the cumulative impact of the fresh start adjustments as discussed above and the elimination of Predecessor accumulated earnings.

(16)Reflects the derecognition of accumulated other comprehensive loss.

(5) Revenue Recognition:

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

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

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

Video services include revenues generated from services provided directly to consumer customers as linear terrestrial television services, through DISH® satellite TV service, and through partnerships with over-the-top (OTT) video providers. Video services also includes pay per view revenues, video on demand, equipment rentals, and video advertising. The Company has made the strategic decision to limit sales of new traditional TV services, focusing on our broadband products and OTT video options;

Other customer revenue includes switched access revenue, sales of customer premise equipment to our business customers, rents collected for collocation services, and revenue from other services and fees. Switched access revenue includes revenues derived from allowing other carriers to use our network to originate and/or terminate their local and long-distance voice traffic (switched access). These services are primarily billed on a minutes-of-use basis applying tariffed rates filed with the FCC or state agencies; and

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

21


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The following tables provide a summary of revenues, by category. Prior year revenues in the following tables include revenues for the Northwest Operations for the three and nine months ended September 30, 2020 (prior to its disposal):

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Data and Internet services

$

834 

$

838 

Voice services

411 

500 

Video services

149 

186 

Other

99 

103 

Revenue from contracts with customers (1)

1,493 

1,627 

Subsidy and other revenue (2)

83 

99 

Total revenue

$

1,576 

$

1,726 

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Consumer (3)

$

800 

$

865 

Business and wholesale (3)

693 

762 

Revenue from contracts with customers (1)

1,493 

1,627 

Subsidy and other revenue (2)

83 

99 

Total revenue

$

1,576 

$

1,726 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Data and Internet services

$

1,390 

$

1,125 

$

2,644 

Voice services

694 

647 

1,595 

Video services

254 

223 

608 

Other

161 

125 

328 

Revenue from contracts with customers (1)

2,499 

2,120 

5,175 

Subsidy and other revenue (2)

138 

111 

285 

Total revenue

$

2,637 

$

2,231 

$

5,460 

22


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Consumer (3)

$

1,343 

$

1,133 

$

2,746 

Business and wholesale (3)

1,156 

987 

2,429 

Revenue from contracts with customers (1)

2,499 

2,120 

5,175 

Subsidy and other revenue (2)

138 

111 

285 

Total revenue

$

2,637 

$

2,231 

$

5,460 

(1)Lease revenue included in Revenue from contracts with customers was $16 million for the three months ended September 30, 2021, $26 million for the five months ended September 30, 2021, $21 million for the four months ended April 30, 2021, and $16 million and $50 million for the three and nine months ended September 30, 2020, respectively.

(2)Includes $15 million and $25 million in transition services revenue in connection with the divestiture of the Northwest Operations for the three and nine months ended September 30, 2020, respectively.

(3)Due to changes in methodology during the second quarter of 2021, historical periods have been updated to reflect the comparable amounts.

The following is a summary of the changes in the contract assets and contract liabilities:

Contract Assets

Contract Liabilities

($ in millions)

Current

Noncurrent

Current

Noncurrent

Balance at December 31, 2020 (Predecessor)

$

$

$

58 

$

20 

Revenue recognized included

in opening contract balance

(4)

-

(23)

(3)

Cash received, excluding amounts

recognized as revenue

-

-

22 

Balance at April 30, 2021 (Predecessor)

$

$

$

57 

$

19 

Fresh start accounting adjustments

(2)

(9)

(42)

(18)

Balance at April 30, 2021 (Predecessor)

$

-

$

-

$

15 

$

Balance at April 30, 2021 (Successor)

$

-

$

-

$

15 

$

Revenue recognized included

in opening contract balance

-

-

(13)

(1)

Credits granted, excluding amounts

recognized as revenue

-

-

17 

Reclassified between current

and concurrent

-

-

(1)

Balance at September 30, 2021 (Successor)

$

-

$

-

$

20 

$

23


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Contract Assets

Contract Liabilities

($ in millions)

Current

Noncurrent

Current

Noncurrent

Balance at December 31, 2019 (Predecessor)

$

37 

$

$

41 

$

21 

Revenue recognized included

in opening contract balance

(27)

-

(47)

(10)

Cash received, excluding amounts

recognized as revenue

-

-

64 

Credits granted, excluding amounts

recognized as revenue

-

-

-

Reclassified between current

and concurrent

-

-

(1)

Balance at September 30, 2020 (Predecessor)

$

13 

$

$

59 

$

19 

The unsatisfied obligations for retail customers consist of amounts in advance billings, which are expected to be earned within the following monthly billing cycle. Unsatisfied obligations for wholesale customers are based on a point-in-time calculation and determined by the number of circuits provided and the contractual price. These wholesale customer obligations change from period to period based on new circuits added as well as circuits that are terminated.

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

Successor

($ in millions)

Revenue from contracts with customers

2021 (remaining three months)

$

385 

2022

512 

2023

323 

2024

152 

2025

81 

Thereafter

121 

Total

$

1,574 

(6) Accounts Receivable:

The components of accounts receivable, net are as follows:

Successor

Predecessor

   ($ in millions)

September 30, 2021

December 31, 2020

    

Retail and wholesale

$

424 

$

608 

Other

77 

75 

Less: Allowance for credit losses

(49)

(130)

Accounts receivable, net

$

452 

$

553 

24


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

As of April 30, 2021, the fair value of our net accounts receivable balances approximated their carrying values; therefore, no fair value adjustment for fresh start accounting was required. In estimating the fair values of receivables from certain of our wholesale customers, we evaluated ongoing billing disputes and the current status of settlement discussions. The final settlements with these customers may differ significantly from our estimates. See Note 5 for additional detail.

We maintain an allowance for credit losses based on the estimated ability to collect accounts receivable. The allowance for credit losses is increased by recording an expense for the provision for bad debts for retail customers, and through decreases to revenue at the time of billing for wholesale customers. The allowance is decreased when customer accounts are written off, or when customers are given credits.

The provision for bad debts was $14 million for the four months ended April 30, 2021, and $10 million and $16 million for the three and five months ended September 30, 2021, respectively.

In accordance with ASC 326, Frontier performs its calculation to estimate expected credit losses, utilizing rates that are consistent with the Company’s write offs (net of recoveries) because such events affect the entity’s loss given default experience.

Activity in the allowance for credit losses for the five months ended September 30, 2021 was as follows:

($ in millions)

Successor

    

Balance at April 30, 2021

$

-

Provision for bad debt

(16)

Amounts charged to revenue

(30)

Write offs charged against the allowance

Other

(4)

Balance at September 30, 2021

$

(49)

(7) Property, Plant and Equipment:

Property, plant and equipment, net is as follows:

Successor

Predecessor

($ in millions)

September 30, 2021

December 31, 2020

    

Property, plant and equipment

$

9,232 

$

27,695 

Less: Accumulated depreciation

(314)

(14,764)

Property, plant and equipment, net

$

8,918 

$

12,931 

25


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

As of April 30, 2021, as a result of fresh start accounting, we have adjusted our property, plant, and equipment balance to fair value. See Note 4 for additional information.

Depreciation expense is principally based on the composite group method. Depreciation expense was as follows:

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Depreciation expense

$

191 

$

311 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Depreciation expense

$

318 

$

407 

$

941 

(8) Other Intangibles:

The components of other intangibles as of December 31, 2020 was follows:

Predecessor

December 31, 2020

Gross Carrying

Accumulated

Net Carrying

($ in millions)

Amount

Amortization

Amount

    

Other Intangibles:

Customer base

$

4,332 

$

(3,781)

$

551 

Trade name

122 

-

122 

Royalty agreement

72 

(68)

Total other intangibles

$

4,526 

$

(3,849)

$

677 

26


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

As a result of fresh start accounting, on the Effective Date, intangible assets and related accumulated amortization of the Predecessor were eliminated. Successor intangible assets were recorded at fair value as of the Effective Date. See Note 4. The balances of these assets as of September 30, 2021 are as follows:

Successor

September 30, 2021

Gross Carrying

Accumulated

Net Carrying

($ in millions)

Amount

Amortization

Amount

    

Other Intangibles:

Customer Relationships - Business

$

800 

$

(30)

$

770 

Customer Relationships - Wholesale

3,491 

(91)

3,400 

Trademarks & Tradenames

150 

(13)

137 

Total other intangibles

$

4,441 

$

(134)

$

4,307 

Amortization expense was as follows:

Successor

Predecessor

For the three months

For the three months

ended September 30,

ended September 30,

($ in millions)

2021

2020

Amortization expense

$

82 

$

81 

Successor

Predecessor

For the five months

For the four months

For the nine months

ended September 30,

ended April 30,

ended September 30,

($ in millions)

2021

2021

2020

Amortization expense

$

134 

$

99 

$

263 

For the Predecessor, amortization expense was primarily for our customer base acquired as a result of our acquisitions in 2010, 2014, and 2016 with each based on a useful life of 8 to 12 years and amortized on an accelerated method. Our trade name was an indefinite-lived intangible asset that was not subject to amortization.

Following our emergence from bankruptcy, we amortize our intangible assets on a straight line basis, over the assigned useful lives of 16 years for our wholesale customer relationships, 11 years for our business customer relationships, and 5 years for our trademarks and tradenames.

27


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(9) Divestiture of Northwest Operations:

On May 1, 2020, Old Frontier completed the sale of its Northwest Operations pursuant to the terms and conditions of the Purchase Agreement, dated as of May 28, 2019, for gross proceeds of $1,352 million, subject to certain closing adjustments. Net of funding certain pension and other retiree medical liabilities, funding of indebtedness, funding certain escrows and other closing adjustments, we received $1,131 million in proceeds.

A portion of the proceeds from the sale were held in escrow as recourse for indemnity claims that may arise under the purchase agreement for a period of one year after the sale completion date. During the first and second quarters of 2021, all proceeds previously held in escrow related to indemnification obligations, employee liabilities, and adjustments to working capital were received by the Company and as of September 30, 2021, there are no remaining proceeds held in escrow accounts included in Other current assets.

As of May 28, 2019, the Northwest Operations were included in Frontier’s continuing operations and designated as assets held for sale and liabilities related to assets held for sale and we discontinued recording depreciation on Property, Plant and Equipment and finite-lived intangible assets of this business as required by GAAP. Upon closing of the transaction on May 1, 2020, we derecognized net assets of $1,132 million, including property, plant, and equipment of $1,084 million, goodwill of $658 million, a $603 million valuation allowance on our assets held for sale, and $150 million of defined benefit pension and other postretirement benefit plan obligations, net of transferred pension plan assets.

During the nine months ended September 30, 2020, Frontier recorded a loss on disposal of $160 million, associated with the sale of the Northwest Operations.

(10) Fair Value of Financial Instruments:

The following table summarizes the carrying amounts and estimated fair values for long-term debt at September 30, 2021 and December 31, 2020. For the other financial instruments including cash, accounts receivable, restricted cash, accounts payable and other current liabilities, the carrying amounts approximate fair value due to the relatively short maturities of those instruments.

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

In applying fresh start accounting, our debt obligations were recognized at fair value on our consolidated balance sheet as of April 30, 2021, as described further in Note 4.

Successor

Predecessor

September 30, 2021

December 31, 2020

($ in millions)

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Total debt

$

7,011 

$

7,070 

$

16,769 

$

11,635 

(

28


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

(11) Long-Term Debt:

Chapter 11 Restructuring

The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all then-outstanding obligations under Old Frontier’s debt agreements and notes as follows:

the amended and restated credit agreement, dated as of February 27, 2017 (as amended, the JPM Credit Agreement),

the 8.000% first lien secured notes due April 1, 2027 (the Original First Lien Notes),

the 8.500% second lien secured notes due April 1, 2026 (the Original Second Lien Notes),

the unsecured notes and debentures and the secured and unsecured debentures of the Company’s subsidiaries.

As of the Effective Date, amounts that were outstanding under the JPM Credit Agreement, the Original First Lien Notes, and the Original Second Lien Notes have been repaid in full.

On the Effective Date, pursuant to the terms of the Plan, all of the obligations under Old Frontier’s unsecured senior note indentures were cancelled, and in connection with emergence, Frontier issued 244,401,000 shares of common stock that were transferred to holders of the allowed senior notes claims (as defined under the Plan).

Interest expense for the four months ended April 30, 2021 recorded on our Predecessor statements of operations was lower than contractual interest of $450 million, because we ceased accruing interest on the Petition Date in accordance with the terms of the Plan and ASC Topic 852.

Interest expense for the three and nine months ended September 30, 2020 recorded on our Predecessor statements of operations was lower than contractual interest of $372 million and $1,116 million, respectively, because we ceased accruing interest on the Petition Date in accordance with the terms of the Plan and ASC Topic 852.


29


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

The activity in our long-term debt is summarized as follows:

($ in millions)

Principal debt outstanding, December 31, 2020 (Predecessor)

$

16,769 

Issuance of incremental term loan

225 

Issuance of Takeback Notes

750 

Conversion of Unsecured Senior Notes

(10,949)

Repayment of long term subsidiary debt at maturity

(1)

Principal debt outstanding, April 30, 2021 (Predecessor)

6,794 

Less: Unamortized debt issuance costs

(2)

Less: Unamortized premium (discount)

(39)

Less: Long-term debt due within one year

(15)

Carrying amount of debt, April 30, 2021 (Predecessor)

6,738 

Fresh start accounting fair value adjustment

277 

(1)

Long-term debt, April 30, 2021 (Predecessor)

$

7,015 

Principal debt outstanding, April 30, 2021 (Successor)

$

6,794 

Repayment of long-term debt at maturity

(8)

Principal debt outstanding, September 30, 2021 (Successor)

6,786 

(2)

Less: Unamortized fair value adjustment

225 

Less: Long-term debt due within one year

(15)

Long-term debt, September 30, 2021 (Successor)

$

6,996 

(1)Upon emergence, Frontier adjusted the carrying value of our debt to fair value, in accordance with ASC 852. The adjustment consisted of the elimination of the existing unamortized debt issuance costs and unamortized discounts and recording a balance of $236 million as a fair value adjustment. The fair value accounting adjustment is being amortized into interest expense using the effective interest method. This amortization resulted in $11 million for the five months ended September 30, 2021.

(2)Weighted average interest rate as of September 30, 2021 was 5.658%. Interest rate includes amortization of debt issuance costs and debt discounts. The interest rate at September 30, 2021 represent a weighted average of multiple issuances.


30


PART I. FINANCIAL INFORMATION (Continued)

FRONTIER COMMUNICATIONS PARENT, INC. AND SUBSIDIARIES

(Unaudited)

Additional information regarding our secured and unsecured long-term debt as of September 30, 2021 and December 31, 2020 is as follows:

Successor

Predecessor

September 30, 2021

December 31, 2020

Principal

Interest

Principal

Interest

($ in millions)

Outstanding

Rate

Outstanding

Rate

Secured debt issued by Frontier

Term loan due 10/8/2027

$

1,468 

4.500% (Variable)

$

1,250 

5.750% (Variable)

First lien notes due 10/15/2027

1,150 

5.875%

1,150 

5.875%

First lien notes due 5/1/2028

1,550 

5.000%

1,550 

5.000%

Second lien notes due 5/1/2029

1,000 

6.750%

1,000 

6.750%

Takeback notes due 11/1/2029

750 

5.875%

-

IDRB due 5/1/2030

13 

6.200%

14 

6.200%

Secured debt issued by Frontier

5,931 

4,964 

Unsecured debt issued by Frontier

Senior notes due 4/15/2020

-

172 

8.500%

Senior notes due 9/15/2020

-

55 

8.875%

Senior notes due 7/1/2021

-

89 

9.250%

Senior notes due 9/15/2021

-

220 

6.250%

Senior notes due 4/15/2022

-

500 

8.750%

Senior notes due 9/15/2022

-

2,188 

10.500%

Senior notes due 1/15/2023

-

850 

7.125%

Senior notes due 4/15/2024

-

750 

7.625%

Senior notes due 1/15/2025

-

775 

6.875%

Senior notes due 9/15/2025

-

3,600 

11.000%

Debentures due 11/1/2025

-

138 

7.000%

Debentures due 8/15/2026

-

6.800%

Senior notes due 1/15/2027

-

346