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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission file number 1-4166
FRONTIER CORPORATION
(Previously Rochester Telephone Corporation)
(Exact name of registrant as specified in its charter)
New York 16-0613330
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
180 South Clinton Avenue, Rochester, NY 14646-0700
(Address of principal executive offices) (Zip Code)
(716) 777-1000
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
$1.00 Par Value Common Stock 81,870,674 shares as of
April 30, 1995
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FRONTIER CORPORATION
Part I - Financial Information
==============================
Item 1 - Financial Statements
Presented on the following pages are the consolidated financial
statements of Frontier Corporation. In the opinion of
management, the consolidated financial information reflects all
adjustments necessary for a fair presentation of the financial
statements for the interim periods included herein. There have
been no adjustments made in the interim financial statements
which are not of a normal recurring nature.
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FRONTIER CORPORATION
Consolidated Statement of Income
(Unaudited)
3 Months Ended March 31,
In thousands, except per share data 1995 1994
- ----------------------------------------------------------------------
Revenues and Sales $283,418 $272,103
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Costs and Expenses
Operating expenses 179,309 171,877
Cost of goods sold 4,133 6,381
Depreciation 29,911 29,539
Taxes other than income taxes 10,628 12,086
Acquisition-related charges 4,750 -
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Total Costs and Expenses 228,731 219,883
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Operating Income 54,687 52,220
Interest expense 11,704 10,980
Other income and expense:
Allowance for funds used
during construction 326 276
Gain on sale of subsidiaries 4,826 -
Equity earnings from unconsolidated
wireless interests 396 197
Interest income 3,259 451
Other income (expense), net (1,311) (1,288)
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Income Before Taxes and Cumulative
Effect of Change in Accounting Principle 50,479 40,876
Income taxes 18,804 15,363
Income Before Cumulative Effect of
Change in Accounting Principle 31,675 25,513
Cumulative Effect of Change in Accounting
Principle - accounting for postemployment
benefits - (7,197)
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Consolidated Net Income 31,675 18,316
Dividends on preferred stock 297 297
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Income Applicable to Common Stock $ 31,378 $ 18,019
======================================================================
Dividends on common stock $ 16,989 $ 14,815
Average common shares outstanding 81,932 79,303
Earnings Per Common Share
Income before cumulative
effect of change in accounting principle $ .38 $ .32
Cumulative effect of change in
accounting principle - (.09)
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Net Earnings Per Common Share $ .38 $ .23
======================================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Business Segment Information
(Unaudited)
3 Months Ended March 31,
Dollars in thousands 1995 1994
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Long Distance Communications Services
- -------------------------------------
Revenues $ 122,026 $ 106,426
Operating Income:
Operating Income Before Acquisition-
Related Charges $ 13,891 $ 11,781
Acquisition - Related Charges (4,750) -
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Total $ 9,141 $ 11,781
Depreciation $ 3,752 $ 3,569
Capital Expenditures $ 1,984 $ 4,049
Identifiable Assets $ 224,151 $ 199,348
Local Communications Services
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Revenues:
Rochester, NY Operations $ 77,579 $ 74,688
Regional Operations 75,216 76,311
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Total $ 152,795 $ 150,999
Operating Income:
Rochester, NY Operations $ 20,050 $ 17,315
Regional Operations 28,656 26,294
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Total $ 48,706 $ 43,609
Depreciation:
Rochester, NY Operations $ 13,995 $ 14,025
Regional Operations 11,283 11,403
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Total $ 25,278 $ 25,428
Capital Expenditures $ 13,981 $ 12,847
Identifiable Assets $1,228,274 $1,253,455
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Wireless Communications Services
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Revenues $ 2,287 $ 9,096
Operating Income $ 311 $ 676
Depreciation $ 274 $ 449
Capital Expenditures $ 343 $ 326
Identifiable Assets $ 90,463 $ 66,925
Corporate Operations and Other
- ------------------------------
Revenues $ 6,310 $ 5,582
Operating Income $ (3,471) $ (3,846)
Depreciation $ 607 $ 93
Capital Expenditures $ 2,936 $ 2,297
Identifiable Assets $ 250,003 $ 115,052
Consolidated
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Revenues $ 283,418 $ 272,103
Operating Income $ 54,687 $ 52,220
Depreciation $ 29,911 $ 29,539
Capital Expenditures $ 19,244 $ 19,519
Identifiable Assets $1,792,891 $1,634,780
======================================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Balance Sheet
March 31, December 31,
1995 1994
In thousands of dollars (Unaudited)
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ASSETS
Current Assets
Cash and cash equivalents $ 316,363 $ 317,898
Short-term investments 297 9,047
Accounts receivable 182,108 182,602
Material and supplies 9,276 8,585
Prepayments and other 29,490 25,947
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Total Current Assets 537,534 544,079
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Property, Plant and Equipment
Total Property, Plant and Equipment 1,773,831 1,777,946
Less-Accumulated depreciation 812,068 802,662
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Net property, plant and equipment 961,763 975,284
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Goodwill 157,586 140,455
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Deferred and Other Assets 136,008 126,680
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Total Assets $1,792,891 $1,786,498
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LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 146,087 $ 160,447
Notes payable 58 106
Advance billings 11,614 12,719
Dividends payable 17,041 15,487
Long-term debt due within one year 4,404 4,627
Taxes accrued 33,426 14,233
Interest accrued 11,613 12,305
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Total Current Liabilities 224,243 219,924
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Long-Term Debt 567,090 579,083
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Deferred Income Taxes 108,497 108,646
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Deferred Benefits 49,320 46,001
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Minority Interests 351 252
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Shareowners' Equity
Common stock 81,871 81,871
Capital in excess of par value 258,438 259,662
Retained earnings 480,451 468,282
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820,760 809,815
Less-Treasury stock, at cost 147 -
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Common Shareowners' Equity 820,613 809,815
Preferred stock 22,777 22,777
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Total Shareowners' Equity 843,390 832,592
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Total Liabilities and Shareowners' Equity $1,792,891 $1,786,498
======================================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
3 Months Ended March 31,
In thousands of dollars 1995 1994
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Cash Flows from Operating Activities
Income before cumulative effect of
change in accounting principle $ 31,675 $ 25,513
Cumulative effect of change in
accounting principle - (7,197)
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Net Income 31,675 18,316
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Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and amortization 33,021 35,031
Gain on sale of company/assets (4,826) (467)
Equity earnings from
unconsolidated cellular interests (396) (197)
Cumulative effect of change in
accounting principle - 11,072
Minority interests in net income 107 157
Changes in operating assets and liabilities,
exclusive of impacts of purchase acquisitions:
(Increase) in accounts receivable (2,939) (1,144)
(Increase)/decrease in
material and supplies (616) 740
(Increase) in prepayments and other
current assets (3,430) (1,393)
(Increase) in deferred and other assets (6,203) (5,887)
(Decrease) in accounts payable (13,064) (13,013)
(Decrease) in advance billings (1,111) (1,499)
Increase in accrued interest and taxes 19,769 2,605
Increase in deferred benefits 3,402 2,536
(Decrease) in deferred income taxes (1,057) (661)
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Total Adjustments 22,657 27,880
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Net Cash Provided by Operating
Activities 54,332 46,196
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Cash Flows from Investing Activities
Expenditures for property, plant and
equipment, net (19,299) (20,049)
Decrease in short-term investments 8,750 192
Investment in unconsolidated cellular
interests (470) (8)
Investment in nonaffiliated entities (2,925) -
Cash disposed of in sale of company (196) -
Purchase of company, net of cash acquired (18) -
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Net Cash (Used in) Investing
Activities (14,158) (19,865)
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Cash Flows from Financing Activities
(Decrease) in notes payable (161) (197)
Proceeds from long-term debt 46,666 3,080
Repayments of long-term debt (59,858) (15,066)
Dividends paid (15,733) (14,056)
Issuance/(purchases) of treasury stock (10,041) 2,302
Issuance of common stock, net (292) 104,018
Capital contribution/(distribution to
shareowners) of pooled company (2,290) 465
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Net Cash (Used in) Provided by
Financing Activities (41,709) 80,546
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Net (Decrease) Increase in Cash and
Cash Equivalents (1,535) 106,877
Cash and Cash Equivalents at
Beginning of Period 317,898 32,151
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Cash and Cash Equivalents at End of Period $316,363 $139,028
===================================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 1: Consolidation
The consolidated financial information includes the accounts of
Frontier Corporation and its affiliates (the "Company"). As of
January 1995, the Company reports its operations in four segments:
Long Distance Communications Services, Local Communications
Services, Wireless Communications Services and Corporate Operations
and Other. Previously, the Company reported its operations in only
two segments, Telephone Operations and Telecommunication Services.
The change in the definition of the Company's segments has been
made to better reflect the changing scope of the businesses in
which the Company operates. All historical data have been restated
accordingly to conform with the new presentation.
Intercompany transactions have been eliminated except for
intercompany profit on regulated company purchases (affiliate
sales) from non-regulated affiliates. In the opinion of
management, prices charged by the non-regulated affiliates are
comparable to prices the regulated companies would be required to
pay other suppliers.
Note 2: Acquisitions/Divestitures
On March 3, 1995, the Company completed the sale of Ontonagon
County Telephone Company in Michigan and its subsidiary, Midway
Telephone Company, to Mid-South Communications. The sale resulted
from the Company's plans to expand in areas other than Michigan's
Upper Peninsula. Annual revenues for Ontonagon and Midway amounted
to $3.9 million in 1994, and net income was $.6 million. The sale
resulted in a non-taxable gain of $4.8 million, which has been
recorded in the "Other income and expense" section of the
Consolidated Statement of Income.
On March 17, 1995, the Company finalized its acquisition of
American Sharecom, Inc. (ASI), a long distance company
headquartered in Minneapolis, Minnesota. ASI had been one of the
largest privately owned long distance companies in the country,
with revenues and net income of $123 million and $13 million,
respectively, in the 12 month period ended December 31, 1994.
ASI's sales operations are concentrated in the Midwest, Northwest
and California. The Company acquired all of the outstanding shares
of ASI in exchange for approximately 8.7 million shares of Frontier
common stock. The transaction has been accounted for as a pooling
of interests and all historical financial data have been restated
accordingly. In conjunction with this acquisition, a $4.8 million
one-time charge related to various transition and transaction costs
of the newly combined companies was recorded in the determination
of Operating Income in March 1995.
On March 29, 1995 the Company completed its purchase of Minnesota
Southern Cellular Telephone Company (MSCTC). A total of
approximately 867,000 shares of Frontier common stock were reissued
from treasury in exchange for all of the shares of MSCTC. MSCTC is
the non-wireline cellular provider of service in Minnesota Rural
Service Area #10 and serves a population of 227,000 in an area
south of Minneapolis. The acquisition has been accounted for as a
purchase transaction.
In May 1994, the Company completed the sale of Minot Telephone
Company in Minot, North Dakota to a subsidiary of the Souris River
Telecommunications Cooperative. Minot Telephone was the Company's
only holding in North Dakota and the Company had reassessed its
prospects for expansion in North Dakota. In 1993, annual revenues
for Minot amounted to $13.3 million and net income was $2.8
million. The sale of Minot Telephone Company resulted in a $7.1
million after-tax gain, or $.09 per share.
Note 3: Upstate Cellular Network
In July 1994, Frontier Corporation and NYNEX Corporation combined
cellular interests and formed a 50/50 joint venture to operate a
cellular network in upstate New York. Financial results for the
joint venture have been reported on the equity method of
accounting, reflecting Frontier's proportionate share of the joint
venture's earnings in the "Other income and expense" section of the
Consolidated Statement of Income. Previously, revenues and
expenses for these New York State wireless properties had been
consolidated.
Note 4: Income Taxes
The Company files a consolidated federal income tax return.
The provision for income taxes consists of the following (in
thousands):
3 Months Ended
March 31,
1995 1994
----------------------
Federal:
Current $17,719 $14,970
Deferred (1,098) (1,568)
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$16,621 $13,402
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State:
Current $ 2,142 $ 2,122
Deferred 41 (161)
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2,183 1,961
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Total $18,804 $15,363
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Deferred income taxes associated with Local Communications Services
have not been provided for the flow-through of temporary
differences where regulatory agencies permit only taxes actually
paid to be recognized. At March 31, 1995, the cumulative balance
of tax reductions not previously offset by provisions for deferred
federal income taxes amounted to $40 million. Similarly, the
cumulative balances of tax reductions not previously offset by
provisions for deferred state income taxes amounted to $18 million
at March 31, 1995. Consistent with the provisions of Financial
Accounting Standards Board Statement No. 109 (FAS 109), "Accounting
for Income Taxes," a deferred tax liability and a long-term
deferred asset have been recorded to reflect the impact applicable
to these cumulative reductions and the future revenue to be
recovered when these taxes become payable.
Note 5: Postemployment Benefits
In January 1994, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 112, "Employers'
Accounting for Postemployment Benefits" (FAS 112). FAS 112
requires that projected future costs of providing postemployment,
pre-retirement benefits, such as disability, pre-pension leave
(salary continuation) and severance pay, be recognized as an
expense as employees render service rather than when the benefits
are paid. The Company recognized the obligation for postemployment
benefits through a cumulative effect charge to net income of $7.2
million, net of taxes of $3.9 million. The adoption of FAS 112 is
not expected to significantly impact future operating expense or
the Company's cash flow.
Note 6: Earnings Per Share
Average common shares outstanding include amounts for common
stock equivalents resulting from stock options outstanding at March
31, 1995 and March 31, 1994.
Primary earnings per common share amounts are calculated by
dividing Income Applicable to Common Stock by the weighted average
common shares and common share equivalents outstanding, as
applicable, during each period. Earnings per share on a fully
diluted basis are computed as set forth in Exhibit 11.
Note 7: Stock Split
In November 1993, the Board of Directors approved a 2-for-1 split
of the Company's common stock effected in the form of a 100 percent
stock dividend with no change in the $1.00 per share par value.
The New York State Public Service Commission (NYSPSC) approved the
split in March of 1994. The record date for the split was April
15, 1994, and distribution of certificates began on April 29, 1994.
Historical share and per share data have been retroactively
adjusted to reflect the split where appropriate.
Note 8: Stock Offering
In February of 1994, the Company sold 5.4 million shares of its
common stock at $42 per share in a public offering. As part of the
offering, 2,549,000 new primary shares were issued and sold
directly by the Company and 2,885,000 shares were sold by C FON
Corporation, a wholly-owned subsidiary of Centel Corporation, which
is a wholly-owned subsidiary of Sprint Corporation. All share and
per share data referred to in this Note are prior to the 2-for-1
stock split in April of 1994.
Note 9: Stock Incentive Plans
At March 31, 1995, the Company had a Directors Stock Option Plan
and an Executive Stock Option Plan ("Plans"). Under the Plans,
there were originally 3,000,000 option shares available for
issuance.
Under both Plans, the exercise price is the fair market value of
the stock on the date of the grant of the stock option. One third
of the options become exercisable on the first year anniversary of
the grant date. Another third become exercisable on the second
year anniversary and the final third become exercisable on the
third year anniversary of the grant date. The options expire ten
years after the date of grant.
Information with respect to options under the above Plans
follows:
Option Price
Shares Per Share Aggregate
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Outstanding at
December 31, 1994 700,705 $14,086,144
First Quarter Activity:
Granted 418,800 $21.875 $ 9,161,250
Exercised (500) $15.750-$19.063 (8,206)
Cancelled (4,834) $19.313-$22.688 (102,057)
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Outstanding at
March 31, 1995 1,114,171 $23,137,131
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At March 31, 1995, 286,295 shares were exercisable and 1,869,516
shares were available for future grant. Shares and option price
per share were adjusted for the 2-for-1 split in April, 1994.
At the April 26, 1995 Annual Meeting of Common Shareowners, two
proposals were approved modifying these Plans. The Management
Stock Option Plan was amended and renamed the Management Stock
Incentive Plan. Under the amended Plan, both stock options and
shares of restricted stock may be granted. The restrictions on
vesting may include achievement of certain performance goals and/or
continued employment with the Company through a specified
restricted period.
The aggregate number of shares of the Company's common stock
available for award under this Plan during any calendar year will
not exceed one percent of the number of issued shares, including
treasury shares, of the Company's common stock.
In addition, the Directors Stock Option Plan was amended and
renamed the Directors Stock Incentive Plan. A maximum of 1,000,000
shares may be issued from that Plan. Under the amended Plan, non-
employee directors of Frontier receive annual option grants of
4,000 options, non-employee directors of Frontier subsidiaries
receive annually 3,000 options, and non-employee Frontier directors
receive annually stock awards of 500 shares. New non-employee
Frontier directors receive, additionally, a one-time grant of 1,000
shares which they must retain during their tenure on the Board.
Note 10: Cash Flows
For purposes of the Statement of Cash Flows, the Company
considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Actual interest paid was $12.4 million and $12.1 million for the
three month periods ended March 31, 1995, and March 31, 1994,
respectively. In addition, actual income taxes paid were $5.3
million for the three months ended March 31, 1995, and $8.6 million
for the three months ended March 31, 1994.
Note 11: Open Market Plan and Corporate Restructuring
At its public meeting in October 1994, the New York State Public
Service Commission (NYSPSC) unanimously approved the Company's Open
Market Plan and Corporate Restructuring (Open Market Plan) and
subsequently issued a written order in November 1994. This
landmark decision resulted in opening up the Rochester, New York
local exchange market to competition and simultaneously allowed the
Company to form a holding company. The Open Market Plan, including
the change of the Registrant's name from Rochester Telephone
Corporation to Frontier Corporation, was approved by shareowners in
December 1994 and became operational on January 1, 1995.
As a result of the Open Market Plan, two new companies have been
formed from the operating assets of the former Rochester operating
telephone company. One company (Frontier Communications of
Rochester, Inc.) is a lightly regulated telecommunications company
which provides an array of services on a retail basis in the
Rochester marketplace. This company has the flexibility to price
and introduce services as necessary to compete. The second company
(Rochester Telephone Corp.) is a network company which is more
heavily regulated and provides services to the new competitive
subsidiary company and all other telecommunications providers on an
equal basis. The network company also continues to provide
services to individual retail customers. This configuration has
been established to better meet the current and emerging
competition in the marketplace.
For the seven-year period of the Open Market Plan, Rochester
Telephone Corp. will no longer be subject to rate of return
regulation. In its place, the company will be subject to price
regulation. The local market for telephone service in Rochester is
being opened to full competition. Over the course of the seven
year Open Market Plan period, rate reductions of $21 million will
be implemented for Rochester area consumers. In addition, a total
of $17 million will be credited to the depreciation reserve.
The Open Market Plan temporarily resolves certain financial
questions that are linked to the royalty proceeding, a contested
proceeding that has been in litigation since 1984. In particular,
the NYSPSC has agreed that a royalty will not be imposed by the
NYSPSC against the Company or Rochester Telephone Corp. during the
seven year period of the Plan, subject to limited exceptions.
However, the NYSPSC is not precluded from seeking any royalties
pursuant to the Royalty Order, on a prospective basis only, as it
may be modified as a result of judicial appeal, subsequent to the
expiration of the Open Market Plan. Under the Open Market Plan,
the Company is permitted to continue its litigation challenging the
Royalty Order, and the Company intends to pursue it to conclusion.
The Company has also reorganized into a holding company structure
as allowed under the Open Market Plan Agreement. This structure
provides additional financing flexibility to continue the
acquisition and diversification efforts necessary for the long-term
growth of the business. In conjunction with this restructuring,
certain corporate expenses that had previously been reported in the
"Other income and expense" section of the Consolidated Statement of
Income have been reclassified as costs and expenses above the
"Operating Income" line. In order to be consistent with this
change, historical data have also been reclassified. The total
amount of corporate expenses that were reclassified for the three
month period ended March 31, 1994 was $5.0 million.
Note 12: Commitments and Contingencies
It is anticipated that the Company will expend approximately $125
million for additions to property, plant, and equipment during
1995. In connection with this capital program, the Company has
made certain commitments for the purchase of material and
equipment.
On November 8, 1994, the Company signed a definitive agreement to
acquire WCT Communications, Inc., an interexchange carrier based in
Santa Barbara, California that operates long distance and
telemanagement businesses in California and other western states.
Under the definitive agreement, as amended, each public WCT
shareowner will receive $5.875 per share pursuant to a cash merger,
with the exception of Richard Frockt, WCT's chairman and 24 percent
shareholder, who will receive $3.75 per share. Mr. Frockt and
Christopher Edgecomb, WCT's Executive Vice President and 7 percent
shareholder, have agreed to vote their shares in favor of the
merger. The total cash consideration to be paid by Frontier
Corporation for all the outstanding shares of WCT will be
approximately $79.8 million. When the transaction is consummated,
WCT's interexchange operations, which generated $102 million of
revenues in its fiscal year ended June 30, 1994, will be merged
into Frontier Corporation's long distance operation, Frontier
Communications International. The transaction will be accounted
for as a purchase acquisition and is subject to necessary
regulatory approvals. The expected closing date for the
acquisition is in 1995.
On April 10, 1995, the Company announced it had signed a
definitive agreement to enter into a business combination with ALC
Communications Corporation, creating the fifth-largest long
distance company in the U.S. ALC, through its wholly-owned
subsidiary Allnet Communications Services, Inc. provides long
distance products and services to small and medium-sized business
customers nationwide. ALC, headquartered in Bingham Farms,
Michigan, is a publicly-held company whose stock trades on the
American Stock Exchange. The combined company is expected to
generate consolidated revenues of approximately $2 billion. Under
the terms of the merger agreement, each shareholder of ALC will
receive 2.0 shares of Frontier stock for each share of ALC stock
for a total of approximately 79 million shares of Frontier common
stock. The transaction is subject to approval of shareowners of
Frontier and ALC and other necessary regulatory approvals and
customary conditions. The transaction, which will be accounted for
as a pooling of interests, is expected to close in the third
quarter of 1995.
On April 28, 1995, Frontier announced that it had reached a
definitive agreement to acquire Enhanced TeleManagement, Inc.
(ETI), a privately-held telecommunication company specializing in
the integration and resale of local and long distance services to
small and medium-sized business customers. Frontier will pay
approximately $27 million in cash in exchange for all of the common
shares of ETI. The transaction is subject to the approval of the
FCC and the Minnesota Public Utilities Commission, as well as ETI
shareowners. It is expected that the transaction will be accounted
for as a purchase, and it is estimated that the closing will occur
in the third quarter of 1995.
On May 11, 1995 Frontier announced it had reached a definitive
agreement to acquire Schneider Communications, Inc. (SCI) and
LinkUSA Corporation (LinkUSA), two Midwest telecommunications
companies. SCI serves approximately 11,000 long distance customers
in the upper Midwest and LinkUSA, which is owned 80.8 percent by
SCI, provides wholesale enhanced services for the long distance
industry. The combined annualized revenue of SCI and LinkUSA is
approximately $90 million. Frontier will pay cash of approximately
$127 million for SCI and the majority ownership in LinkUSA. The
transaction, which is expected to occur in the third quarter of
1995, will be accounted for as a purchase acquisition.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1995 and 1994
- ------------------------------------------
DESCRIPTION OF BUSINESS
Frontier Corporation (formerly Rochester Telephone
Corporation) is a diversified telecommunications service
company, serving more than 1.5 million customers in 41
states throughout the United States. Frontier
Corporation's principal lines of business include Long
Distance Communications Services, Local Communications
Services (comprised of 34 local telephone companies
providing service to over 900,000 access lines in the
Northeast, Midwest, and South), cellular and paging
operations, and telecommunications equipment sales.
RESULTS OF OPERATIONS
Consolidated
- ------------
Net income for the first quarter of 1995 amounted to
$31.7 million, a $13.4 million increase, or 72.9 percent,
over the comparable period in 1994. Earnings per share
were $.38 in 1995 versus $.23 in 1994. The results in
1994 included a $7.2 million after-tax charge ($.09 per
share) for the adoption of Financial Accounting Standards
Board Statement No. 112 (FAS 112), "Employers' Accounting
for Postemployment Benefits," related to the accounting
for certain employee benefits costs. Excluding this
charge in 1994, net income rose 24.2 percent and earnings
per share rose 18.8 percent.
The results for 1995 also included certain one-time
items -- a $4.8 million non-taxable gain on the sale of a
telephone subsidiary and a $4.8 million pre-tax charge
($3.1 million after taxes) for one-time costs associated
with the acquisition of a long distance company completed
in March 1995. Excluding all of the one-time items,
1995's first quarter net income rose $4.4 million, or 17.4
percent, to $30.0 million, and earnings per share rose
12.5 percent in the first quarter to $.36 per share in
1995 from $.32 per share in 1994. The number of average
common shares outstanding increased 2.6 million shares to
81.9 million shares in the first quarter of 1995 as a
result of the Company's equity offering in February 1994.
Consolidated revenues and sales for the first quarter of
1995 were $283.4 million, up $11.3 million, or 4.2
percent, over the comparable period in 1994. Operating
income was $54.7 million for the three months ended March
31, 1995, up $2.5 million, or 4.7 percent, from the same
three months in 1994.
During the first quarter of 1995, two key events
occurred that impacted the financial results for prior
periods. First, the Company reorganized in holding
company form in conjunction with the implementation of its
Open Market Plan. (See Note 11 in Notes to Consolidated
Financial Statements.) As a result, certain corporate
costs that previously were reported in the "Other income
and expense" section have been reclassified and are now
being reported in costs and expenses above the "Operating
Income" line. Total corporate costs reclassified in the
first quarter of 1994 amounted to $5.0 million.
In addition to this expense reclassification, the
Company has redefined its business segments to better
distinguish its primary lines of business. The Company is
now reporting its operating results in four segments: Long
Distance Communications Services, Local Communications
Services, Wireless Communications Services, and Corporate
Operations and Other. This classification replaces the
previous manner of reporting which reflected only two
groups, Telephone Operations and Telecommunications
Services.
The second event was related to the Company's
acquisition in March 1995 of American Sharecom, Inc.
(ASI), a long distance company headquartered in
Minneapolis, Minnesota. The Company issued approximately
8.7 million new shares of its common stock in exchange for
all of the outstanding shares of ASI. The transaction has
been accounted for as a pooling of interests and,
accordingly, all historical results have been restated to
reflect the results of operations of ASI. ASI's revenues
and operating income for the first three months in 1994
were $30.3 million and $5.2 million, respectively.
In addition to the above-mentioned items, several one-
time events have taken place in 1994 and 1995 that have
impacted the comparability of the financial results.
These are summarized as follows:
1. In July 1994, the Company and NYNEX Corporation
combined certain cellular interests and formed a 50/50
joint venture to operate a cellular network in upstate
New York. Financial results of the joint venture have
been reported by the Company on the equity method of
accounting, reflecting Frontier's proportionate share of
the joint venture's earnings in the "Other income and
expense" section on the Consolidated Statement of
Income. Previously, the revenues and expenses of these
wireless operations in New York had been consolidated.
Revenues included in the first quarter of 1994 for these
wireless properties were $8.8 million, while associated
operating income was $1.3 million.
2. In May 1994, the Company sold its only telephone
operating company in North Dakota, Minot Telephone, for
cash. In the first quarter of 1994, Minot's revenues
and operating income were $3.4 million and $1.1 million,
respectively.
3. In early March 1995, the Company sold Ontonagon
County Telephone Company and its subsidiary, Midway
Telephone due to the Company's plans to expand in areas
other than Michigan's Upper Peninsula. A non-taxable
gain of $4.8 million resulted from the sale and was
reported in the "Other income and expense" section of
the Consolidated Statement of Income. March 1994's
revenues and operating income associated with these
properties were $.3 million and $.1 million,
respectively.
4. In March 1995, the Company recorded a $4.8 million
charge associated with its acquisition of ASI. This one-
time charge related to various transition and
transaction costs associated with the assimilation of
the newly combined companies, including a provision for
redundant equipment, bank and legal fees and projected
integration expenses.
Adjusting for these items, consolidated revenues and
operating income rose 9.2 percent and 19.3 percent,
respectively, for the first three months of 1995 when
compared with the same period in 1994.
Long Distance Communications Services
- -------------------------------------
Long Distance Communications Services is comprised of
the Company's long distance operations, including Frontier
Communications International Inc. (formerly RCI Long
Distance, Inc.), American Sharecom, Inc., Frontier
Communications of the Mid Atlantic, Inc. (formerly Mid
Atlantic Telecom, Inc.), Frontier Communications of New
England, Inc. (formerly Long Distance North), and Frontier
Long Distance (formerly Visions Long Distance). ASI
joined this business unit in March 1995, continuing with
the growth strategy of expanding nationwide. The
acquisition, which was accomplished by issuing
approximately 8.7 million shares of Frontier stock in
exchange for all of the shares of ASI, was accounted for
as a pooling of interests and resulted in the addition of
$32.2 million in revenues in the first three months of
1995 versus $30.3 million in the same period in 1994.
Long distance revenues totaled $122.0 million in the
first quarter of 1995, a $15.6 million increase, or 14.7
percent, over the same quarter in 1994. Long Distance
Communications Services comprised 43 percent of
consolidated revenues in the first quarter of 1995. The
primary factor behind this increase was continued strong
growth in the retail and wholesale long distance revenue
at Frontier Communications International.
Costs and expenses for long distance operations
increased $13.5 million, excluding the $4.8 million one-
time charge related to the acquisition costs for ASI.
This increase is the result of related increases in access
costs due to higher sales, and higher marketing and sales
expenses. Access costs as a percentage of revenues were
approximately 58 percent in 1995 as compare with 59
percent in 1994.
Excluding the $4.8 million acquisition charge, operating
income for long distance rose 17.9 percent to $13.9
million for the first three months of 1995. Without ASI,
long distance operating income rose 21.2 percent,
reflecting Frontier's continuing focus on improving
operating margins. ASI's lower growth rate was partially
due to a revenue rate reduction in California that became
effective in January 1995. Operating margins increased to
11.4 percent in 1995, excluding the one-time acquisition-
related charge, an increase over 1994's operating margin
of 11.1 percent.
Local Communications Services
- -----------------------------
Local Communications Services is comprised of the
Company's local telephone operations, consisting of the
Rochester, New York operation and the regional telephone
operations, which is made up of 33 other telephone
operating subsidiaries in 13 states. In addition, the
local service revenues and associated expenses generated
from the efforts of Frontier Communications of Rochester,
the newly formed competitive telecommunications company
that provides an array of services on a retail basis in
the Rochester marketplace, are included with the
Rochester, New York operation. The non-local service
revenues resulting from the sales efforts of Frontier
Communications of Rochester, such as those associated with
long distance and wireless services, are reported in other
segments as appropriate. Consequently, the Local
Communications Services segment includes both wholesale
and retail local service associated with the Rochester
market.
Revenues for Local Communications Services were $152.8
million in the three month period ended March 31, 1995, an
increase of $1.8 million, or 1.2 percent. This segment
accounted for 54 percent of consolidated revenues in 1995.
Results in 1995 were adversely impacted by the
dispositions of Minot Telephone in May 1994, and Ontonagon
County Telephone and its subsidiary, Midway Telephone, in
March 1995. Adjusting for these items, which amounted to
an additional $3.7 million in 1994's first quarter,
revenues rose 3.7 percent in the first three months of
1995. Revenues for Rochester, NY Operations rose 3.9
percent in the quarter, driven mainly by higher local
service revenues. This increase resulted from lower
revenue sharing with customers as was required under the
previous form of regulation. Total access lines (adjusted
for the dispositions) increased 1.0 percent during the
first quarter of 1995 to a total amounting to more than
922,000. The Rochester market showed a strong 1.3 percent
growth, primarily a result of higher demand for services
in the open market environment.
Costs and expenses in the first quarter 1995 for Local
Communications Services were $104.1 million, a decrease of
$3.3 million, or 3.1 percent over 1994. This decrease was
the result of the telephone company dispositions in the
Regional Operations and ongoing cost controls. Employees
per 10,000 access lines, a common measure of efficiency
for telephone companies, was 31 as of March 31, 1995, a
significant improvement from 34 a year earlier.
Operating income was $48.7 million, an increase of $5.1
million, or 11.7 percent over 1994. Operating margins
improved from 28.9 percent in 1994 to 31.9 percent in
1995, driven by improvements in both the Rochester
Operations and the Regional Operations.
Wireless Communications Services
- --------------------------------
Wireless Communications Services is comprised of the
Company's wireless operations where it has a sufficient
ownership interest to report on a consolidated basis. As
of March 31, 1995, this segment included the Alabama RSA's
#4 and #6, of which the Company has a 70 percent interest,
and Minnesota RSA #10, of which the Company acquired a 100
percent interest in late March 1995 and accounted for as a
purchase transaction.
The Company's minority interests, including the 50/50
joint venture with NYNEX in upstate New York that was
formed in July 1994, are accounted for on the equity
method. This method of accounting results in the
Company's proportionate share of earnings (losses) being
reflected in a single line item below operating income.
Prior to the formation of the wireless joint venture with
NYNEX in July 1994, the revenues and expenses of the
wireless operations in upstate New York had been
consolidated.
Revenues for Wireless Communications were $2.3 million
for the first quarter of 1995, down $6.8 million, or 74.9
percent, from the comparable period in 1994. The 1995
results reflect only the operations of the Alabama
cellular properties, whereas the 1994 results reflect
revenues associated with the upstate New York wireless
properties that are no longer being consolidated
subsequent to the formation of the joint venture. Total
costs and expenses were $2.0 million in the three months
ended March 31, 1995, a decrease of 76.5 percent over
1994. This decrease is consistent with the corresponding
decrease in revenues. Operating income for the first
quarter of 1995 was $.3 million, a decrease of $.4
million, or 54 percent, over 1994.
The Company's proportionate share of wireless revenues,
reflecting the ownership percentage of wireless interests
consolidated for financial reporting purposes and the
Company's ownership percentage of its significant
unconsolidated wireless interests (which are accounted for
on the equity method for financial reporting purposes),
was $9.1 million in 1995, an increase of 4.7 percent over
the comparable quarter in 1994. The proportionate share
of operating cash flow for these properties, defined as
operating income plus depreciation, was up 2.2 percent.
With respect to the wireless joint venture with NYNEX,
revenues for the partnership interests in this operation
exceeded $17 million during the first quarter of 1995, an
increase of 17 percent over 1994. Although operating
income was relatively flat year over year, operating cash
flow doubled to $3.1 million as a result of standardizing
and accelerating depreciation of certain wireless
equipment to better reflect the remaining useful lives.
Corporate Operations and Other
- ------------------------------
Corporate Operations is comprised of the expenses
traditionally associated with a holding company,
including executive and board of directors expenses,
corporate finance and treasury, investor relations,
corporate planning and business development. The Other
category is comprised primarily of Frontier Network
Systems, or FNS (formerly Rotelcom Inc.), external sales
associated with the Company's information technologies
operation, Frontier Information Technologies, and
intersegment eliminations.
Revenues in the first quarter of 1995 were $6.3 million,
an increase of $.7 million, or 13.0 percent, over 1994.
Essentially all of these revenues pertain to FNS. The
increase is due to higher system installation revenue and
lower intersegment sales eliminations.
Total costs and expenses for this segment amounted to
$9.8 million, a $.4 million increase, or 3.7 percent, over
1994. Expenses at FNS rose in relation to the increase in
sales, while corporate operations expenses were steady at
$4.4 million for each of the corresponding three month
periods.
Other Income Statement Items
- ----------------------------
Interest Expense
----------------
Interest expense was $11.7 million in the first quarter
of 1995, a $.7 million increase over 1994. This increase
is the result of higher balances of long-term debt
outstanding, primarily as a result of debt issued as part
of the implementation of the Open Market Plan.
Gain on Sale of Subsidiaries
----------------------------
The $4.8 million gain on sale of subsidiaries in 1995
resulted from the sale of Ontonagon County Telephone
Company and its subsidiary, Midway Telephone, due to the
Company's plans to expand in areas other than Michigan's
Upper Peninsula. The Company acquired shares of its own
common stock in the transaction, in exchange for all the
shares of Ontonagon and Midway. The gain of $4.8 million
was non-taxable.
Equity Earnings from Unconsolidated Wireless Interests
------------------------------------------------------
Equity earnings from the Company's interests in wireless
partnerships in the first quarter of 1995 were $.4
million, an increase of $.2 million over 1994. This
increase is the result of higher equity earnings from two
minority partnerships in Georgia and New York. The equity
earnings associated with the Company's joint venture with
NYNEX were negligible in the first quarter of 1995, due to
changes depreciation expense that were made to
standardize lives across the various partnerships.
Interest Income
---------------
Interest income in the first quarter of 1995 amounted to
$3.3 million, an increase of $2.8 million over 1994's
first quarter. This increase is primarily the result of
higher cash balances related to the equity offering in
early 1994, the sale of Minot Telephone in May 1994 and
the issuance of debt in December 1994.
Income Taxes
------------
Consolidated income taxes increased $3.4 million, or
22.4 percent, in the first quarter of 1995. This increase
was primarily due to higher pre-tax income. The effective
income tax rate was 37.3 percent for the first three
months of 1995 as compared with 37.6 percent in 1994.
FINANCIAL CONDITION
Cash and Cash Equivalents
- -------------------------
At March 31, 1995, the Company had $316.4 million in
cash and cash equivalents compared with $317.9 million at
December 31, 1994, a modest decrease of $1.5 million.
Cash generated from operations amounted to $54.3 million
in the first three months of 1995. Offsetting this was a
$14.2 million outflow for investing activities (mainly
capital expenditures) and a $41.7 million outflow for
financing activities such as debt retirements, dividend
payments and treasury stock purchases. See the
Consolidated Statement of Cash Flows for additional
information.
Debt
- ----
In April 1995, three of the Company's debt rating
agencies put Frontier Corporation's senior unsecured debt
under review for potential downgrade. These actions
occurred as a result of the Company's announcement to
acquire ALC Communications Corp. The agencies acknowledge
that although the merger will likely strengthen Frontier's
financial position, the increased exposure to the higher
risk long distance industry may adversely impact its
credit rating. Specifically, on April 11, 1995, Standard
& Poors put Frontier Corporation's A+ senior unsecured
debt rating on credit watch with negative implications and
also put Rochester Telephone Corp.'s AA senior unsecured
debt rating on credit watch with negative implications.
Standard & Poors noted it is unlikely that Rochester
Telephone Corp.'s debt rating will fall below AA-. Also
on April 11, 1995, Moody's put Frontier Corporation's A2
senior unsecured debt rating under review for potential
downgrade. On April 12, 1995, Fitch placed the Company's
A+ outstanding medium-term notes and senior debentures on
Fitch Alert with negative implications. On April 11,
1995, the Company's fourth debt rating agency, Duff &
Phelps, reaffirmed Frontier's A credit rating for
outstanding notes and debentures.
At March 31, 1995, the Company's total debt, including
notes payable, amounted to $571.6 million, a decrease of
$12.2 million from December 31, 1994. This decrease is
mainly the result of the retirement of $7.0 million of 9%
debentures (due 2020), and the retirement of $4.5 million
of debt associated with the Minnesota wireless property
that was acquired at the end of March 1995.
Debt Ratio and Interest Coverage
- --------------------------------
The Company's debt ratio (total debt as a percent of
total capitalization) was 40.4 percent at March 31, 1995
as compared with 41.2 percent at December 31, 1994. This
change is due to debt retirements made during the first
quarter of 1995. Pre-tax interest coverage was 5.3 times
for the first three months of 1995, as compared with 3.7
times for the same period in 1994.
Capital Spending
- ----------------
During the first quarter of 1995, gross capital
expenditures amounted to $19.2 million. The Company plans
to spend a total of approximately $125 million on its
capital program during the full year in 1995. The total
capital program represents an increase of $36 million over
1994. The increase is largely driven by capital
requirements associated with the growth of the long
distance and wireless operations and the integration of
long distance acquisitions.
Dividends
- ---------
On February 13, 1995, the Board of Directors declared
the first quarter 1995 dividend of 20.75 cents per share
on the Company's common stock, payable May 1, 1995 to
shareowners of record on April 14, 1995.
OTHER ITEMS
Regulatory Matters
- ------------------
During the seven year period of the Open Market Plan
Agreement which became effective on January 1, 1995,
Rochester Telephone Corp. (the operating telephone company
in Rochester, New York) will no longer be regulated by the
monopoly standard of rate-of-return regulation, but
instead by pure price cap regulation. The local market
for telephone service in Rochester has been opened up to
full competition. Over the course of the seven year
period of the Open Market Plan, rate reductions of $21
million will be implemented for Rochester area consumers.
In addition, a total of $17 million will be credited to
the depreciation reserve during this seven year period.
Rochester Telephone Corp. can decide when to increase the
depreciation reserve, provided that by the end of the
first year, the amount shall be at least $5 million and,
by the end of the fifth year, the cumulative amount shall
be at least $15 million. During the first quarter of
1995, no credits were taken against the depreciation
reserve.
Certain Considerations Related to the Open Market Plan
- ------------------------------------------------------
Management believes there are significant market and
business opportunities associated with the Company's Open
Market Plan, described in Note 11 to the Consolidated
Financial Statements. However, there are also
uncertainties associated with the Plan and the corporate
restructuring. In our opinion, these are the most
significant:
(a) Increased Competition in the Rochester, New York
Market. The Open Market Plan is hastening local
telephone competition in the Rochester, New York
market by providing for (1) the full interconnection
of competing local networks including reciprocal
compensation for terminating traffic, (2) equal
access to network databases, (3) access to local
telephone numbers and (4) telephone number
portability. Some competitors, such as AT&T, have
already begun providing basic local exchange services
in the Rochester market. The inherent risk
associated with opening the Rochester market to
competition is that some customers will purchase
services from competitors, which would reduce the
number of customers of the Company and potentially
cause a decrease in the Company's revenues and
profitability. The Company believes, however, that
usage of its network following implementation of the
Open Market Plan will increase over the long term,
and that new revenue will offset, to some extent, the
loss of revenues from end-user customers. In the
first quarter of 1995, access line growth in
Rochester was very encouraging with a 1.3 percent
growth, reflecting the stimulation of demand as a
result of competition. Increased competition may
also lead to additional price decreases for services
of the Company, adversely impacting the Company's
margins. However, price cap regulation will not
require Rochester Telephone Corp. to rebate any
additional earnings achieved through operating
efficiencies that previously would have been shared
with customers. The Open Market Plan allows the
Company to anticipate the erosion of its market share
in local exchange services on terms that the Company
believes will be in the best interests of its
customers, employees and shareowners.
(b) Risk of Rate Stabilization Plan. The Rate
Stabilization Plan incorporated in the Open Market
Plan Agreement provides for a total of $21 million in
rate reductions for Rochester Telephone Corp. over
the life of the Agreement. During this time, the
rates charged by Rochester Telephone Corp. for basic
residential and business telephone service may not be
increased for any reason. But, since Rochester
Telephone Corp. will operate under a price cap
environment with no rate of return regulation, the
Company will be able to retain the full value of any
cost savings it introduces over the life of the plan.
Even though the rates provided in the Rate
Stabilization Plan were designed to permit the
Company to recover its costs and to earn a reasonable
rate of return, there is no assurance that this will
occur.
(c) Restraints on the Company's Control of Rochester
Telephone Corp. The Open Market Plan prohibits
payment of dividends by Rochester Telephone Corp. to
Frontier Corporation if (i) Rochester Telephone
Corp.'s senior debt has been downgraded to "BBB" by
Standard & Poor's ("S&P"), or the equivalent rating
by other rating agencies or is placed on credit watch
for such a downgrade, or (ii) a service quality
penalty is imposed under the Open Market Plan
Agreement. Dividends paid to the parent, Frontier
Corporation, also are prohibited unless Rochester
Telephone Corp.'s directors certify that such
dividends will neither impair Rochester Telephone
Corp.'s service quality nor its ability to finance
its short and long term capital needs on reasonable
terms while maintaining an S&P debt rating target of
"A". Other financial covenants exist to ensure that
Rochester Telephone Corp. will have the financial
strength to provide quality service. The Company
believes that these conditions will not affect the
opportunities for either Frontier Corporation or
Rochester Telephone Corp.
(d) Potential Diversification Risk. The Company is
now able to make acquisitions and investments, enter
into new lines of business and geographic areas,
issue equity securities and incur long-term
indebtedness without NYSPSC approval, subject to
certain exceptions. The Company may pursue
opportunities with both greater potential profits and
greater business risk than it could pursue as a
telephone company subject to the authority of the
NYSPSC. There can be no assurance that any expansion
of the Company's business will be successful.
However, it is the current intention of the Company
to engage only in telecommunications-related
businesses.
(e) Other Considerations. Because Rochester
Telephone Corp. and Frontier Communications of
Rochester will sometimes compete for the same
customers, there may be some duplication of sales and
service expenses in the consolidated company. Over
time, this duplication is expected to reach minimal
levels.
Part II - Other Information
Item 1 - Legal Proceedings
- --------------------------
On June 11, 1992, a group of corporate plaintiffs
consisting of Cooper Industries, Inc., Keystone
Consolidated Industries, Inc., The Monarch Machine Tool
Company, Niagara Mohawk Corporation, and Overhead Door
Corporation commenced an action in the United States
District Court for the Northern District of New York
seeking contribution from Rotelcom Inc., a wholly-owned
subsidiary of the registrant held through intervening
subsidiaries (now named Frontier Network Systems Inc. or
"FNS") and fourteen other corporate defendants for
environmental "response costs" in the approximate amount
of $1.5 million incurred by the plaintiffs pursuant to a
decree entered into by plaintiffs with the United States
Environmental Protection Agency (the "EPA"). Two
additional defendants were named in 1994. In addition to
FNS, the current defendants are: Agway, Inc., BMC
Industries, Inc.; Borg-Warner Corporation; Elf Atochem
North America, Inc.; Mack Trucks, Inc.; Motor
Transportation Services, Inc.; Pall Trinity Micro
Corporation; The Raymond Corporation; Redding-Hunter,
Inc.; Smith Corona Corporation; Sola Basic Industries,
Inc.; Wilson Sporting Goods Company; Philip A. Rosen;
Harvey M. Rosen; City of Cortland; and New York State
Electric & Gas Corporation.
The consent decree concerned the clean-up of an
environmental Superfund site located in Cortland, New
York. It is alleged that the corporate defendants
disposed of hazardous substances at the site and are
therefore liable under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). The
Company anticipates that a final Record of Decision
("ROD") will be issued by the EPA which will prescribe the
remediation requirements for the site. The aggregate
amount of remediation costs to be incurred by the
plaintiffs will be based on the requirements of the ROD.
The total cost of remediation at the site is uncertain,
although estimates have recently ranged from $25 million
and $100 million. There has been no allocation of
liability as among or between the plaintiffs or
defendants. The extent to which plaintiffs can recover
any of these costs from the defendants, including FNS,
will be determined at a trial which is scheduled to begin
in July 1995. FNS has been vigorously defending this
lawsuit. Discovery proceedings against FNS have now been
completed and a possible motion for summary judgment is
being evaluated by FNS counsel. The Company believes that
it will ultimately be successful, but it is unable to
predict the outcome with any certainty at this time.
In its Opinion and Order in Case 87-C-8959, issued July
6, 1993, the NYSPSC, by a three-to-two vote, imposed a
royalty upon the Company in the amount of two percent of
the total capitalization of the Company's unregulated
operations. The NYSPSC justified the royalty on two
grounds: first, that ratepayers are entitled to
protection from the potential for cost misallocations and
increased risk that accompany diversification of the
Company's basic telephone business; and second, that the
Company's unregulated operations benefit from their use of
the Rochester name and reputation. The NYSPSC rejected
the Company's statutory and constitutional defenses and
concluded that it possessed the authority under the Public
Service Law to impose a royalty and that its imposition is
not unconstitutional. Based upon an initial
interpretation of the Order, the Company estimates that
its potential effect is in the range of $2 million per
year. The royalty, if implemented, would be an imputation
against the Rochester, New York operating company's
revenue requirement from regulated intrastate operations.
The NYSPSC ordered the Rochester, New York operating
company to file, by August 5, 1993, an accounting plan to
account for the royalty amount, together with a plan for
returning such amount to ratepayers. The NYSPSC denied a
request for waiver and, on August 5, 1993, the Rochester,
New York operating company filed its plan.
On August 6, 1993, the Rochester, New York operating
company filed with Supreme Court, Albany County, its
petition seeking judicial review of the NYSPSC's Opinion
and Order. By order dated October 7, 1993, this
proceeding was transferred to the Appellate Division,
Third Department. On June 30, 1994, the Appellate
Division unanimously upheld the Commission's Order. On
July 29, 1994, the Company filed a Notice of Appeal and a
Motion for Leave To Appeal with the New York Court of
Appeals. On December 8, 1994, the Court of Appeals
accepted the Company's appeal and denied the Motion for
Leave To Appeal as unnecessary. Briefs were filed between
February and April 1995. On February 27, 1995, the NYSPSC
moved to dismiss the appeal as moot as a result of the
Open Market Plan Settlement. The Company filed its
opposition to that motion on March 13, 1995. On April 4,
1995, the Court denied the Commission's motion to dismiss
without prejudice to renew at oral argument and set the
case for oral argument on September 21, 1995. The Company
is vigorously contesting this case and is of the opinion
that it will ultimately prevail, but cannot predict the
outcome with any certainty at this time. This royalty
issue has been settled for the Rochester, New York
operating company for the duration of the Rate Period of
the Rate Stabilization Plan, which is part of the Open
Market Plan.
Prior to Frontier's acquisition of American Sharecom,
Inc. (ASI) in March 1995, an appraisal proceeding entitled
American Sharecom, Inc. v. LDB International et al,
Minnesota Court of Appeals File No. C9-94-2419 was
commenced in connection with a merger which occurred in
1992. In this proceeding, former holders of 57 shares of
ASI Common Stock (dissenters) exercised their rights under
Minnesota law to challenge the amount they received for
their shares in the merger. In November 1994, a Minnesota
District Court directed ASI to pay an additional $4.6
million to the dissenters, plus interest and legal fees.
ASI recorded a $5.3 million contingent liability during
the fourth quarter of 1994. Both ASI and the dissenters
have appealed the District Court decision to the Minnesota
Court of Appeals.
On April 10 and 11, 1995, three lawsuits were commenced
against ALC Communications Corporation as a result of its
announced merger with Frontier Corporation. In two of
those actions, each filed in the Court of Chancery of the
State of Delaware, in and for New Castle County by Martin
Mayers and Mordecai Cohen, respectively, Frontier
Corporation has been named as a defendant, although not
yet served with process. The lawsuits purport to be class
actions brought on behalf of all ALC stockholders against
ALC and its directors. Among other things, the complaints
seek to enjoin the business combination and/or to obtain
an award of damages. Frontier Corporation believes these
actions to be without merit and will defend itself
vigorously if and when it has been served with process.
The Regulatory Matters discussion in Management's
Discussion and Analysis of Financial Condition and Results
of Operations in Part I, Item 2 is incorporated herein by
reference.
Item 2 - Changes in Securities
- ------------------------------
The Board of Directors of Frontier Corporation declared
a dividend of one preferred share purchase right for each
outstanding share of common stock to shareowners of record
on April 24, 1995. Each right entitles the holder to
purchase one one-hundredth of a share of Series A Junior
Participating Class A Preferred Stock, par value $100 per
share. For more information, see the Company's Form 8-K
filed with the Commission on April 11, 1995, which is
hereby incorporated by reference.
Item 4 - Submission of Matters to a Vote of Security
Holders
- ----------------------------------------------------
The Annual Meeting of Shareowners was held on April
26, 1995 for the purpose of electing a board of directors,
approving the appointment of auditors, and voting on the
proposals described below.
All of management's nominees for Directors as listed
in the proxy statement were elected with the following
vote:
For Against
1. Patricia C. Barron 62,211,578 457,924
2. Ronald L. Bittner 62,215,176 454,326
3. Raul E. Cesan 62,156,481 513,021
4. Brenda E. Edgerton 62,206,804 462,698
5. Jairo A. Estrada 62,238,592 430,910
6. Daniel E. Gill 62,140,081 529,421
7. Alan C. Hasselwander 62,246,883 422,620
8. Douglas H. McCorkindale 62,249,055 420,447
9. Leo J. Thomas 62,239,541 429,961
The appointment of Price Waterhouse, LLP as
independent auditor for the fiscal year 1995 was approved
with the following vote:
Broker
For Against Abstain Non-Votes
------------------------------------------------------
62,032,774 323,538 313,190 None
The Management Stock Incentive Plan proposal, to expand the
group of key employees eligible to participate and add restricted
stock as a component of compensation, was approved with the
following vote:
Broker
For Against Abstain Non-Votes
------------------------------------------------------
48,168,430 7,616,112 1,189,580 5,695,380
The Directors Stock Incentive Plan proposal, to
expand the group of eligible participants to include non-
employee Directors of the Company's subsidiaries and to
authorize the award of stock grants to the Directors of
the Company (but not Directors of its subsidiaries), was
approved with the following vote:
Broker
For Against Abstain Non-Votes
------------------------------------------------------
56,936,612 4,450,812 1,272,409 None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
3 Amendment to Restated Certificate of Incorporation
10-37 Copy of Directors Stock Incentive Plan
10-38 Copy of Management Stock Incentive Plan
11 Computation of Earnings per
Share of Common Stock on a Fully Diluted
Basis (Unaudited)
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter.
February 13, 1995 - The following event was reported:
Item 2. Frontier Corporation entered into agreements
with WCT Communications, Inc. and American Sharecom, Inc.
to acquire the stock of each company. The report
contained Frontier Corporation's 1994 Consolidated
Financial Statements and Management's Discussion and
Analysis and American Sharecom, Inc.'s Audited Financial
Statements as of October 31, 1994 and 1993 and July 31,
1993. Also filed were Unaudited Combined Pro Forma
Consolidated Financial Statements and the Notes to
Unaudited Pro Forma Combined Financial Statements for
Frontier Corporation, WCT Communications, Inc. and
American Sharecom, Inc.
The following financial statements were filed with this
report:
Frontier Corporation:
Management's Discussion of Results of Operations
and Analysis of Financial Condition
Report of Independent Accountants
Business Segment Information
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareowners' Equity
Notes to Consolidated Financial Statements
American Sharecom, Inc.:
Report of Independent Auditors
Consolidated Statements of Financial Position: October
31, 1994 and July 31, 1993
Consolidated Statements of Operations: Year Ended
October 31, 1994,
Three Month Period Ended October 31, 1993
and Year Ended July 31, 1993
Consolidated Statements of Cash Flows: Year Ended
October 31, 1994,
Three Month Period Ended October 31, 1993 and Year
Ended July 31, 1993
Notes to Consolidated Financial Statements: October
31, 1994 and July 31, 1993
Unaudited Pro Forma Combined Financial Information
Frontier Corporation, WCT Communications, Inc. and
American Sharecom, Inc. - Unaudited Pro Forma
Combined Balance Sheet: December 31, 1994
Frontier Corporation and WCT Communications, Inc. -
Unaudited Pro Forma Combined Statement of Income
(Frontier Corporation Pro Forma): Year Ended December
31, 1994
Frontier Corporation and American Sharecom, Inc. -
Unaudited Pro Forma Combined Statement of Income:
Years Ended December 31, 1993 and 1992
Frontier Corporation - Notes to Unaudited Pro Forma
Combined Financial Statements
February 22, 1995. The following event was reported:
- ----------------------------------------------------
Item 5. The terms of the WCT Communications, Inc. acquisition
agreement were renegotiated, resulting in a proposed payment of
approximately $79.8 million in cash for all the shares of WCT.
The following financial statements were filed with this item:
None.
February 28, 1995. The following event was reported:
- ----------------------------------------------------
Item 5. The definitive agreement for WCT Communications, Inc.
was finalized and signed, subject to approval of respective
boards of directors.
The following financial statements were filed with this item:
None.
March 22, 1995. The following event was reported:
- -------------------------------------------------
Item 2. The acquisition of American Sharecom, Inc. was closed
on March 17, 1995.
The following financial statements were filed with this item:
None.
April 10, 1995. The following event was reported:
- -------------------------------------------------
Item 5. Frontier Corporation and ALC Communications
Corporation announced they have entered into an Agreement and
Plan of Merger.
The following financial statements were filed with this item:
None.
April 11, 1995. The following event was reported:
- -------------------------------------------------
Item 5. Frontier Corporation declared a dividend of one
preferred share purchase right for each outstanding share of
common stock to shareowners of record on April 24, 1995.
The following financial statements were filed with this item:
None.
April 12, 1995. The following event was reported:
- -------------------------------------------------
Item 2. Supplementary Consolidated Financial Statements and
Supplementary Management's Discussion and Analysis were filed
showing the acquisition of American Sharecom, Inc. using "pooling
of interests" accounting treatment.
The following financial statements were filed with this report:
Supplementary Management's Discussion of Results of
Operations and Analysis of Financial Condition
Supplementary Report of Independent Accountants
Supplementary Business Segment Information
Supplementary Consolidated Statement of Income
Supplementary Consolidated Balance Sheet
Supplementary Consolidated Statement of Cash Flows
Supplementary Consolidated Statement of Shareowners' Equity
Supplementary Notes to Consolidated Financial Statements
April 27, 1995. The following event was reported:
- -------------------------------------------------
Item 2. As reported previously, Frontier Corporation
and ALC Communications Corporation have entered into an
Agreement and Plan of Merger. Filed by this report are
Unaudited Combined Pro Forma Consolidated Financial
Information and the Notes to Unaudited Pro Forma Combined
Financial Statements for Frontier Corporation and ALC
Communications Corporation.
The following financial statements were filed with this
report:
Unaudited Pro Forma Combined Financial Information
Frontier Corporation and ALC Communications Corporation
- Unaudited Pro Forma Combined Balance Sheet: March 31, 1995
Frontier Corporation and ALC Communications Corporation
- Unaudited Pro Forma Combined Statement of Income: Three
Months Ended March 31, 1995 and 1994
Frontier Corporation and ALC Communications Corporation
- Unaudited Pro Forma Combined Statement of Income: Years
Ended December 31, 1994, 1993 and 1992
Frontier Corporation - Notes to Unaudited Pro Forma Combined
Financial Statements
May 9, 1995. The following event was reported:
- ----------------------------------------------
Item 2. Amendments and exhibits and schedules to Exhibit 2-1
filed with the Form 8-K on March 22, 1995, together with a
refiled Exhibit 2-1, were filed on this Form 8-K/A.
The following financial statements were filed with this
item: None.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
FRONTIER CORPORATION
------------------------------------
(Registrant)
Dated: May 12, 1995 /s/ Louis L. Massaro
--------------------------------
Louis L. Massaro
Corporate Vice President Finance
(and Principal Financial Officer)
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ----------------------------------------------------------------------
3 Amendment to Restated Certificate Filed herewith
of Incorporation
10-37 Directors Stock Incentive Plan Filed herewith
10-38 Management Stock Incentive Plan Filed herewith
11 Statement re: Computation of Earnings Filed herewith
per Share of Common Stock on a
Fully Diluted Basis (Unaudited)
27 Financial Data Schedule
<PAGE>
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
FRONTIER CORPORATION
(Under Section 805 of the
Business Corporation Law of the State of New York)
------------------------------------
We, the undersigned, JOHN K. PURCELL and JOSEPHINE S.
TRUBEK, being respectively a Corporate Vice President and the
Corporate Secretary of Frontier Corporation, do hereby CERTIFY
that:
1. The name of the Corporation is "Frontier Corporation".
The name under which the Corporation was incorporated is
"ROCHESTER TELEPHONE CORPORATION".
2. The Certificate of Incorporation of the Corporation was
filed in the Department of State of the State of New York on
February 25, 1920. A restated Certificate of Incorporation was
filed in the Department of State of the State of New York on
April 2, 1968. A second restated Certificate of Incorporation
was filed in the Department of State of the State of New York on
February 17, 1995 (such second restated Certificate of
Incorporation, the "Certificate of Incorporation").
3. The Certificate of Incorporation is hereby amended to
add a provision to Article FOURTH thereof stating the number,
designation, relative rights, preferences and limitations of the
Series A Junior Participating Class A Preferred Stock as fixed by
the Board of Directors of the Corporation and to set forth in
full the text of such provision. To effect the foregoing,
Article FOURTH of the Certificate of Incorporation is amended to
add the following at the end of such Article FOURTH:
I. Series A Junior Participating Class A Preferred Stock
<PAGE>
<PAGE> 2
There is hereby established a series of Class A Preferred
Stock of the number and designation, and having relative
rights, preference and limitations as follows:
Section 1. Designation and Amount. The shares of such
series shall be designated as "Series A Junior Participating
Class A Preferred Stock" (the "Series A Preferred Stock")
and the number of shares constituting the Series A Preferred
Stock shall be 3,000,000. Such number of shares may be
increased or decreased by resolution of the Board of
Directors; provided that no decrease shall reduce the number
of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares
of any series of Preferred Stock of the Corporation (or any
similar stock) ranking prior and superior to the Series A
Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock, in preference to the
holders of Common Stock of the Corporation and of any other
stock of the Corporation ranking junior to the Series A
Preferred Stock, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in
cash on the first day of January, April, July, and October
in each year (each such date being referred to herein as a
"Dividend Payment Date"), commencing on the first Dividend
Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of
(a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends
<PAGE>
<PAGE> 3
or other distributions other than a dividend payable in
shares of Common Stock, declared on the Common Stock since
the immediately preceding Dividend Payment Date or, with
respect to the first Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares
a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any
Dividend Payment Date and the next subsequent Dividend
Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable, when, as and
if declared, on such subsequent Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative,
whether or not earned or declared, on outstanding shares of
Series A Preferred Stock from the Dividend Payment Date next
preceding the date of issue of such shares, unless the date
of issue of such shares is prior to the record date for the
first Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Dividend Payment
<PAGE>
<PAGE> 4
Date or is a date after the record date for the
determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before
such Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 50 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of
Series A Preferred Stock shall have the following voting
rights;
(A) Subject to the provision for adjustment
hereinafter set forth and except as otherwise provided
herein or in the Certificate of Incorporation or required by
law, each share of Series A Preferred Stock shall entitle
the holder thereof to 100 votes on all matters upon which
the holders of the Common Stock of the Corporation are
entitled to vote. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a
dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in
each such case the number of votes per share to which
d Stock were entitled
immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
<PAGE>
<PAGE> 5
(B) Except as otherwise provided herein or in the
Certificate of Incorporation or in any other Certificate of
Amendment creating a series of Preferred Stock or any
similar stock, and except as otherwise required by law, the
holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall
vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise
provided by law, holders of Series A Preferred Stock shall
have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether
or not earned or declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(as to dividends) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a
parity (as to dividends) with the Series A Preferred
Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such
shares are then entitled;
<PAGE>
<PAGE> 6
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock
of the Corporation ranking junior (as to dividends and
upon dissolution, liquidation or winding up) to the
Series A Preferred Stock or rights, warrants or options
to acquire such junior stock;
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock,
or any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
in accordance with a purchase offer made in writing or
by publication (as determined by the Board of
Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative
rights and preferences of the respective series and
classes, shall determine in good faith will result in
fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time
and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof.
Section 6. Liquidation, Dissolution or Winding Up.
Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (A) to the
<PAGE>
<PAGE> 7
holders of the Common Stock or of shares of any other stock
of the Corporation ranking junior, upon liquidation,
dissolution or winding up, to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an
amount equal to accrued and unpaid dividends and
distributions thereon, whether or not earned or declared, to
the date of such payment, provided that the holders of
shares of Series A Preferred Stock shall be entitled to
receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (B) to the holders of
shares of stock ranking on a parity upon liquidation,
dissolution or winding up with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled
upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such
event under the proviso in clause (A) of the preceding
sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of
Common Stock are converted into, exchanged for or changed
into other stock or securities, cash and/or any other
property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly
<PAGE>
<PAGE> 8
converted into, exchanged for or changed into an amount per
share (subject to the provision for adjustment hereinafter
set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each
share of Common Stock is converted, exchanged or converted.
In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount
set forth in the preceding sentence with respect to the
conversion, exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to
such event.
Section 8. No Redemption. The shares of Series A
Preferred Stock shall not be redeemable from any holder.
Section 9. Rank. The Series A Preferred Stock shall
rank, with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or
winding up of the Corporation, junior to all other series of
Preferred Stock and senior to the Common Stock.
Section 10. Amendment. If any proposed amendment to
the Certificate of Incorporation (including this Certificate
of Amendment) would alter, change or repeal any of the
preferences, powers or special rights given to the Series A
Preferred Stock so as to affect the Series A Preferred Stock
adversely, then the holders of the Series A Preferred Stock
shall be entitled to vote separately as a class upon such
amendment, and the affirmative vote of two-thirds of the
outstanding shares of the Series A Preferred Stock, voting
separately as a class, shall be necessary for the adoption
<PAGE>
<PAGE> 9
thereof, in addition to such other vote as may be required
by the Business Corporation Law of the State of New York.
Section 11. Fractional Shares. Series A Preferred
Stock may be issued in fractions of a share which shall
entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred
Stock.
4. This Certificate of Amendment of the Certificate of
Incorporation of the Corporation was authorized by a majority
vote of the Board of Directors of the Corporation pursuant to
Section 502 of the Business Corporation Law of the State of New
York.
IN WITNESS WHEREOF, the undersigned have executed, and
subscribed this Certificate of Amendment of the Certificate of
Incorporation of the Corporation this 9th day of April, 1995 and
statements contained herein are affirmed as true under the
penalties of perjury.
/s/ John K. Purcell
----------------------------
John K. Purcell
Corporate Vice President
/s/ Josephine S. Trubek
----------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>
<PAGE>1
EXHIBIT 10-37
[2/14/95]
FRONTIER CORPORATION
DIRECTORS STOCK INCENTIVE PLAN
The Rochester Telephone Corporation Directors Stock
Option Plan is hereby amended, restated and renamed as the
Frontier Corporation Directors Stock Incentive Plan (the "Plan")
to reflect the company's reorganization and the change in the
parent company's name to Frontier Corporation (the "Company"), to
authorize the award of stock grants in addition to stock options
and to expand eligibility to outside directors of the Company's
subsidiaries as follows:
1. PURPOSE
The purpose of the Plan is to enable the Company and
its subsidiaries to attract and retain outside directors and
provide them with an incentive to maintain and enhance the
Company's long-term performance record. It is intended that this
purpose will best be achieved by granting eligible directors
non-qualified stock options ("options") and/or stock grants
(collectively options and stock grants are referred to as
"awards") under this Plan pursuant to the rules set forth in
Section 83 of the Internal Revenue Code, as amended from time to
time.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board
of Directors (the "Board"). Subject to the provisions of the
Plan, the Board shall possess the authority, in its discretion,
(a) to prescribe the form of the stock option and stock grant
agreements including any appropriate terms and conditions
applicable to these awards and to make any amendments to such
agreements or awards; (b) to interpret the Plan; (c) to make and
<PAGE>
<PAGE>2
amend rules and regulations relating to the Plan; and (d) to make
all other determinations necessary or advisable for the
administration of the Plan. The Board's determinations shall be
conclusive and binding. No member of the Board shall be liable
for any action taken or decision made in good faith relating to
the Plan or any award granted hereunder.
3. ELIGIBLE DIRECTORS
Members of the Board of Directors of the Company and
its subsidiaries who are not also employees of the Company or its
subsidiaries are eligible to participate in this Plan. Eligible
directors of the Company's Board are entitled to receive both
options and stock grants. Eligible directors of a subsidiary are
entitled to receive only options. Beneficial owners of more than
five percent of the Common Stock of the Company are not eligible
to receive any awards under this Plan.
4. SHARES AVAILABLE
An aggregate of 1,000,000 shares of the Common Stock
(par value $1.00 per share) of the Company (subject to
substitution or adjustment as provided in Section 9 hereof) shall
be available for the grant of awards under the Plan. Such shares
may be authorized and unissued shares. If an option expires,
terminates or is cancelled without being exercised, new options
may thereafter be granted covering such shares. No award may be
granted more than ten years after the effective date of the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Each option granted under the Plan shall be evidenced
by an option agreement in such form as the Board shall approve
from time to time, which agreement shall conform with this Plan
and contain the following terms and conditions:
(a) Number of Shares. At the date each year when new
members are elected to the Company's Board, each eligible
director who will be serving on the new Board (whether newly
elected or continuing as a carryover director) shall receive
an option to purchase 4000 shares of the Company's Common
<PAGE>
<PAGE>3
Stock. For an eligible director of a subsidiary's Board, the
option shall be for 3000 shares.
An eligible director who begins Board service on a date
other than the date when new members are normally elected to
the Board shall receive a pro rata grant to cover the
partial year remaining until the next Board election. The
number of shares subject to such option shall be 4000 (3000
in the case of a director of a subsidiary) multiplied by a
fraction the numerator of which is the number of full or
partial months in the period commencing on the first day of
the month following the new Board member's appointment and
ending on the next following date when new members are
elected to the Board and the denominator of which is 12.
Any fractional share shall be rounded up to the next highest
whole number of shares.
(b) Exercise Price. The exercise price under each
option shall equal the fair market value of the Common Stock
at the time such option is granted. For this purpose, fair
market value shall equal the closing price of the Company's
Common Stock on the New York Stock Exchange on the date an
option is granted, or, if there was no trading in such stock
on the date of such grant, the closing price on the last
preceding day on which there was such trading.
(c) Duration of Option. Each option by its terms
shall not be exercisable after the expiration of ten years
from the date such option is granted.
(d) Options Nontransferable. Each option by its terms
shall not be transferable by the participant otherwise than
by will or the laws of descent and distribution, and shall
be exercisable, during the participant's lifetime, only by
the participant, the participant's guardian or the
participant's legal representative.
(e) Exercise Terms. Each option granted under the
Plan shall become exercisable with respect to 33 1/3 percent
of the shares subject thereto on the first anniversary of
the date of grant and with respect to an additional 33 1/3
<PAGE>
<PAGE>4
percent of such shares on each of the second and third
anniversaries of such date of grant. Options may be
partially exercised from time to time during the period
extending from the time they first become exercisable until
the tenth anniversary of the date of grant.
(f) Payment of Exercise Price. An option shall be
exercised upon written notice to the Company accompanied by
payment in full for the shares being acquired. The payment
shall be made in cash, by check or, if the option agreement
so permits, by delivery of shares of Common Stock of the
Company registered in the name of the participant, duly
assigned to the Company with the assignment guaranteed by a
bank, trust company or member firm of the New York Stock
Exchange, or by a combination of the foregoing. Any such
shares so delivered shall be deemed to have a value per
share equal to the fair market value of the shares on such
date. For this purpose, fair market value shall equal the
closing price of the Company's Common Stock on the New York
Stock Exchange on the date the option is exercised, or, if
there was no trading in such stock on the date of such
exercise, the closing price on the last preceding day on
which there was such trading.
6. TERMS AND CONDITIONS OF STOCK GRANTS
Each stock grant awarded under the Plan shall be
evidenced by a stock grant agreement in such form as the Board
shall approve from time to time, which agreement shall conform
with the Plan and the following terms and conditions:
(a) Number of Shares. At the date each year when new
members are elected to the Company's Board, each eligible
director of the Company who will be serving on the new Board
(whether newly elected or continuing as a carryover
director) shall be granted 500 shares of the Company's
Common Stock.
An eligible director who begins Board service on a date
other than the date when new members are normally elected to
the Board shall receive a pro rata grant to cover the
<PAGE>
<PAGE>5
partial year remaining until the next Board election. The
number of shares subject to such grant shall be 500
multiplied by a fraction the numerator of which is the
number of full or partial months in the period commencing on
the first day of the month following the new Board member's
appointment and ending on the next following date when new
members are elected to the Board and the denominator of
which is 12. Any fractional share shall be rounded up to
the next highest whole number of shares.
Notwithstanding the foregoing two paragraphs of this
Section 6(a), an eligible director who begins his or her
first service on the Company's Board, whether such service
commences on the date of the Annual Meeting or on another
date, shall be granted 1000 shares of the Company's Common
Stock.
(b) Vesting. All shares shall be fully and
immediately vested at the date of grant.
(c) Restriction on Transferability. The 500 shares
(or the partial year pro rata portion of such shares)
granted annually to each eligible director are not subject
to any transfer restrictions under the terms of this Plan.
However, the 1,000 shares granted to a first time director
(including additional shares obtained through dividend
reinvestment) may not be sold, gifted or otherwise
transferred while the director remains on the Board of the
Company unless the Board in its sole and absolute discretion
determines otherwise.
(d) Custody of Share Certificates. Certificates for
all shares subject to the transferability restriction under
subsection (c) above shall be held by the Company for the
benefit of the director who shall deliver to the Company a
stock power executed in blank covering such shares. Except
for this custody restriction, the holder of a stock grant
shall possess all the rights of a holder of the Company's
Common Stock, including voting and dividend rights, provided
that all dividends shall be automatically reinvested in
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additional shares of Company Common Stock rather than paid
in cash.
(e) Miscellaneous. All other provisions of the Plan
not inconsistent with this Section 6 shall apply to stock
grants and the holder thereof unless otherwise determined by
the Board. Stock grants shall be considered as directors
fees for purposes of any plan of deferred compensation that
permits the deferral of directors fees.
7. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any
certificate upon the grant of any award, the exercise of an
option or the satisfaction of any condition with respect to any
award until it has been furnished with such opinion,
representation or other document as it may reasonably deem
necessary to insure compliance with any law or regulation of the
Securities and Exchange Commission or any other governmental
authority having jurisdiction under this Plan. Certificates
delivered upon such grant, exercise or satisfaction of any
condition may bear a legend restricting transfer absent such
compliance. Each award shall be subject to the requirement that,
if at any time the Board shall determine, in its discretion, that
the listing, registration or qualification of the shares subject
to such award upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or
in connection with, the granting of such award or the issue or
purchase of shares thereunder, such award may not be granted or
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of
Directors in the exercise of its reasonable judgment.
8. TERMINATION OF EMPLOYMENT
(a) Options. If a director dies, either before or
after termination as a director, resigns from the Board as a
result of a conflict of interest or is removed from the
Board for cause, any option may be exercised by the director
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or by the director's personal representative, as the case
may be, at any time prior to the earlier of the expiration
date of the option or the first anniversary of the
director's date of death, resignation or removal but only
if, and to the extent that, the director was entitled to
exercise the option at the date of death, resignation or
removal. If a director's employment as a director
terminates for any reason other than death, resignation due
to a conflict or removal for cause, option rights shall
continue to vest in accordance with the terms of the option
agreement without regard to the termination of employment
and may be exercised by the director pursuant to the terms
of that agreement.
(b) Stock Grants. Upon a director's termination of
employment as a director for any reason, all certificates
for shares of Common Stock held by the Company on account of
the restriction on the transfer of stock grants during
service on the Board shall be delivered to the director. In
the event termination of employment is caused by the
director's death such certificates shall be delivered to the
director's personal representative. All such deliveries of
certificates shall be made as soon as reasonably practicable
on or following the date a director terminates employment as
a director of the Company.
9. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the
Company by reason of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights offering
to purchase Common Stock at a price substantially below fair
market value, or of any similar change affecting the Common
Stock, the number and kind of shares authorized under Section 4,
the number and kind of shares which thereafter are subject to an
award under the Plan and the number and kind of shares set forth
in options under outstanding agreements and the price per share
shall be adjusted automatically consistent with such change to
prevent substantial dilution or enlargement of the rights granted
to, or available for, participants in the Plan.
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10. NO EMPLOYMENT RIGHTS
The Plan and any awards granted under the Plan shall
not confer upon any director any right with respect to
continuance as a director of the Company or any subsidiary, nor
shall they interfere in any way with any right the Company or its
subsidiaries may have to terminate the director's position as a
director at any time.
11. RIGHTS AS A SHAREOWNER
The recipient of any option under the Plan shall have
no rights as a shareowner with respect thereto unless and until
certificates for shares of Common Stock are issued to the
recipient. The recipient of a stock grant shall have all rights
of a shareowner except for the nontransferability and dividend
reinvestment requirements.
12. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the
shareowners of the Company or by the Company's Board of
Directors, provided that Plan provisions relating to the amount,
price and timing of awards may not be amended more than once
every six months other than to comport with changes in the
Internal Revenue Code or the regulations thereunder and provided
further that the Board may not, without approval of the
shareowners, materially increase the benefits accruing to
participants under the Plan, increase the maximum number of
shares as to which awards may be granted under the Plan, change
the minimum exercise price, change the class of eligible persons,
extend the period for which options may be granted or exercised,
or withdraw the authority to administer the Plan from the Board
or a Committee of the Board. Notwithstanding the foregoing, to
the extent permitted by law, the Board may amend the Plan without
the approval of shareowners, to the extent it deems necessary to
cause the Plan to comply with Securities and Exchange Commission
Rule 16b-3 or any successor rule, as it may be amended from time
to time. Except as required by law, no amendment, modification,
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<PAGE>9
or termination of the Plan may, without the written consent of a
director to whom any award shall theretofore have been granted,
adversely affect the rights of such director under such option.
13. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in
the event of a change in control of the Company (as defined in
subsection (c) below), all of a participant's options shall
become immediately vested and exercisable and all of a
participant's certificates held by the Company under a stock
grant shall be immediately delivered to the participant, unless
directed otherwise by a resolution of the Board adopted prior to
and specifically relating to the occurrence of such change in
control.
(b) In the event of a change in control each
participant holding an exercisable option (i) shall have the
right at any time thereafter during the term of such option to
exercise the option in full notwithstanding any limitation or
restriction in any option agreement or in the Plan, and (ii) may,
subject to Board approval and after written notice to the Company
within 60 days after the change in control, or during the period
beginning on the third business day and ending the twelfth
business day following the first release for publication by the
Company after such change of control of a quarterly or annual
summary statement of earnings, which release occurs at least six
months following grant of the option, whichever period is longer,
receive, in exchange for the surrender of the option or any
portion thereof to the extent the option is then exercisable in
accordance with clause (i), an amount of cash equal to the
difference between the fair market value (as determined by the
Board) on the date of surrender of the Common Stock covered by
the option or portion thereof which is so surrendered and the
option price of such Common Stock under the option.
(c) For purposes of this section "change in control"
means:
1) there shall be consummated
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<PAGE>10
i. any consolidation or merger of the Company in
which the Company is not the continuing or
surviving corporation or pursuant to which any
shares of the Company's common stock are to be
converted into cash, securities or other property,
provided that the consolidation or merger is not
with a corporation which was a wholly-owned
subsidiary of the Company immediately before the
consolidation or merger; or
ii. any sale, lease, exchange or other transfer (in
one transaction or a series of related
transactions) of all, or substantially all, of the
assets of the Company; or
2) the shareowners of the Company approve any plan or
proposal for the liquidation or dissolution of the
Company; or
3) any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), shall become the
beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act), directly or indirectly, of 30%
or more of the Company's then outstanding common stock,
provided that such person shall not be a wholly-owned
subsidiary of the Company immediately before it becomes
such 30% beneficial owner; or
4) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date
hereof whose election, or nomination for election by
the Company's shareowners, was approved by a vote of at
least three quarters of the directors comprising the
Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which
such person is named as a nominee for director, without
objection to such nomination) shall be, for purposes of
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this clause (d), considered as though such person were
a member of the Incumbent Board.
14. EFFECTIVE DATE
The effective date of this restated Plan is January 1,
1995.
15. DEFINITIONS
Any terms or provisions used herein which are defined
in Section 83 of the Internal Revenue Code as amended, or the
regulations thereunder or corresponding provisions of subsequent
laws and regulations in effect at the time options are made
hereunder, shall have the meanings as therein defined.
16. GOVERNING LAW
To the extent not inconsistent with the provisions of
the Internal Revenue Code that relate to non-qualified stock
options and stock grants, this Plan and any agreement adopted
pursuant to it shall be construed under the laws of the State of
New York.
Dated: 4/26/95 FRONTIER CORPORATION
/s/ Josephine S. Trubek
By --------------------------
Josephine S. Trubek
Corporate Secretary
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EXHIBIT 10-38
[2/14/95]
FRONTIER CORPORATION
MANAGEMENT STOCK INCENTIVE PLAN
1. BACKGROUND AND PURPOSE
On April 27, 1994, the shareholders of Rochester
Telephone Corporation approved the Restated Executive Stock
Option Plan. Frontier Corporation (the "Company"), as successor
to Rochester Telephone Corporation, hereby continues, amends,
restates and renames the Restated Executive Stock Option Plan as
the Frontier Corporation Management Stock Incentive Plan (the
"Plan"). The purpose of this restated Plan remains to enable the
Company to attract and retain key employees and provide them with
an incentive to maintain and enhance the Company's long-term
performance record. It is intended that this purpose will best
be achieved by granting eligible key employees incentive stock
options ("ISOs"), non-qualified stock options ("NQSOs") and
restricted stock grants, individually or in combination, under
this Plan pursuant to the rules set forth in Sections 83, 162(m),
421 and 422 of the Internal Revenue Code, as amended from time to
time.
2. ADMINISTRATION
The Plan shall be administered by the Company's
Committee on Management (the "Committee"). This Committee shall
consist of at least two members of the Company's Board of
Directors all of whom shall, unless the Board determines
otherwise, be "outside directors" as this term is defined in Code
Section 162(m) and regulations thereunder and none of whom during
the twelve months prior to commencement of service on the
Committee, or during such service, has been granted or awarded
any equity security or derivative security of the Company
pursuant to the Plan or, except as permitted by Rule 16b-3
(c)(2)(i), or any successor provision, promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange
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<PAGE>2
Act"), any other plan of the Company. Subject to the provisions
of the Plan, the Committee shall possess the authority, in its
discretion, (a) to determine the employees of the Company to
whom, and the time or times at which, ISOs and/or NQSOs (ISOs and
NQSOs are collectively referred to as "options") and restricted
stock grants (all three types of grants are collectively referred
to as "awards") shall be granted; (b) to determine at the time of
grant whether an award will be an ISO, a NQSO, a restricted stock
grant or a combination of these awards and the number of shares
to be subject to each award; (c) to prescribe the form of the
award agreements and any appropriate terms and conditions
applicable to the awards and to make any amendments to such
agreements or awards; (d) to interpret the Plan; (e) to make and
amend rules and regulations relating to the Plan; and (f) to make
all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations shall
be conclusive and binding. No member of the Committee shall be
liable for any action taken or decision made in good faith
relating to the Plan or any award granted hereunder.
3. ELIGIBLE EMPLOYEES
Awards may be granted under the Plan only to employees
of the Company and its subsidiaries (which shall include all
corporations of which at least fifty percent of the voting stock
is owned by the Company directly or through one or more
corporations at least fifty percent of the voting stock of which
is so owned) who hold a position of manager or higher and who
have the capability of making a substantial contribution to the
success of the Company.
4. SHARES AVAILABLE
The total number of shares of the Company's Common Stock
(par value of $1.00 per share) available in the aggregate for
awards under this Plan during any calendar year shall not exceed
one percent (1%) of the number of issued shares of the Company's
Common Stock, including treasury shares, determined as of the
first day of such calendar year (subject to substitution or
adjustment as provided in Section 10). In addition, not more
than 5 million shares of Common Stock shall be available for ISO
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<PAGE>3
awards during the term of the Plan. Finally, the aggregate
number of shares which may be issued under restricted stock
grants at any one time during the life of the Plan may not exceed
three percent (3%) of the number of issued shares, including
treasury shares, of the Company's Common Stock. Shares to be
granted may be authorized and unissued shares or may be treasury
shares.
The total number of shares with respect to which ISO and
NQSO awards in the aggregate may be granted to any one
participant may not exceed 500,000 per calendar year (subject to
substitution or adjustment as provided in Section 10). The total
number of shares with respect to which restricted stock awards
may be granted to any one participant shall not exceed 100,000
per calendar year (subject to substitution or adjustment as
provided in Section 10).
If an award expires, terminates or is cancelled without
being exercised or becoming vested, new awards may thereafter be
granted under the Plan covering such shares unless Rule 16b-3
provides otherwise. No award may be granted more than 10 years
after the effective date of the Plan.
5. TERMS AND CONDITIONS OF ISOS
Each ISO granted under the Plan shall be evidenced by an
ISO option agreement in such form as the Committee shall approve
from time to time, which agreement shall conform with this Plan
and contain the following terms and conditions:
(a) Exercise Price. The exercise price under each
option shall equal the fair market value of the Common Stock
at the time such option is granted, or, if there was no
trading in such stock on the date of such grant, the closing
price on the last preceding day on which there was such
trading. If an option is granted to an officer or employee
who at the time of grant owns stock possessing more than ten
percent of the total combined voting power of all classes of
stock of the Company (a "10-percent Shareholder"), the
purchase price shall be at least 110 percent of the fair
market value of the stock subject to the option.
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<PAGE>4
(b) Duration of Option. Each option by its terms
shall not be exercisable after the expiration of ten years
from the date such option is granted. In the case of an
option granted to a 10-percent Shareholder, the option by
its terms shall not be exercisable after the expiration of
five years from the date such option is granted.
(c) Options Nontransferable. Each option by its terms
shall not be transferable by the participant otherwise than
(i) by will or the laws of descent and distribution, (ii)
pursuant to a domestic relations order, or (iii) to the
extent permitted under the option agreement or
interpretation of the Committee, by gift to family members
or entities beneficially owned by family members or other
permitted transferees under Rule 16b-3 promulgated under the
Exchange Act, and shall be exercisable, during the
participant's lifetime, only by the participant, the
participant's guardian or the participant's legal
representative, the participant's transferee under a
domestic relations order or other permitted transferee under
this section. To the extent required for the option grant
and/or exercise to be exempt under Rule 16b-3, options (or
the shares of Common Stock underlying the options) must be
held by the participant for at least six months following
the date of grant.
(d) Exercise Terms. Each option granted under the Plan
shall become exercisable with respect to 33 1/3 percent of
the shares subject thereto on the first anniversary of the
date of grant and with respect to an additional 33 1/3
percent of such shares on each of the second and third
anniversaries of such date of grant. Options may be
partially exercised from time to time during the period
extending from the time they first become exercisable until
the tenth anniversary (fifth anniversary for a 10-percent
Shareholder) of the date of grant.
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<PAGE>5
No outstanding option may be exercised by any
person if the employee to whom the option is granted is, or
at any time after the date of grant has been, in
competition with the Company or an affiliated company,
including Upstate Cellular Network. The Committee has the
sole discretion to determine whether an employee's actions
constitute competition with the Company or an affiliated
company, including Upstate Cellular Network. The Committee
may impose such other terms and conditions on the exercise
of options as it deems appropriate to serve the purposes
for which this Plan has been established.
(e) Maximum Value of ISO Shares. No ISO shall be
granted to an employee under this Plan or any other ISO
plan of the Company or its subsidiaries to purchase shares
as to which the aggregate fair market value (determined as
of the date of grant) of the Common Stock which first
become exercisable by the employee in any calendar year
exceeds $100,000.
(f) Payment of Exercise Price. An option shall be
exercised upon written notice to the Company accompanied by
payment in full for the shares being acquired. The payment
shall be made in cash, by check or, if the option agreement
so permits, by delivery of shares of Common Stock of the
Company beneficially owned by the participant, duly
assigned to the Company with the assignment guaranteed by a
bank, trust company or member firm of the New York Stock
Exchange, or by a combination of the foregoing. Any such
shares so delivered shall be deemed to have a value per
share equal to the fair market value of the shares on such
date. For this purpose, fair market value shall equal the
closing price of the Company's Common Stock on the New York
Stock Exchange on the date the option is exercised, or, if
there was no trading in such stock on the date of such
exercise, the closing price on the last preceding day on
which there was such trading.
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6. TERMS AND CONDITIONS FOR NQSOS
Each NQSO granted under the Plan shall be evidenced by a
NQSO option agreement in such form as the Committee shall approve
from time to time, which agreement shall conform to this Plan and
contain the same terms and conditions as the ISO option agreement
except that the 10-percent Shareholder restrictions in Sections
5(a) and 5(b) and the maximum value of share rules of Section
5(e) shall not apply to NQSO grants. To the extent an option
initially designated as an ISO exceeds the value limit of
Section 5(e), it shall be deemed a NQSO and shall otherwise
remain in full force and effect.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK GRANTS
The Committee may, evidenced by such written agreement
as the Committee shall from time to time prescribe, grant to an
eligible employee a specified number of shares of the Company's
Common Stock which shall vest only after the attainment of the
relevant restrictions described in Section 7(b) below
("restricted stock"). Such restricted stock shall have an
appropriate restrictive legend affixed thereto. A restricted
stock grant shall be neither an option nor a sale, but shall be
subject to the following conditions and restrictions:
(a) Restricted stock may not be sold or otherwise
transferred by the participant until ownership vests,
provided however, to the extent required for the
restricted stock grant to be exempt under Rule 16b-3,
the restricted stock must be held by the participant
for at least six months following the date of
vesting.
(b) Ownership shall vest only following satisfaction of
one or more of the following criteria as the
Committee may prescribe:
(1) the passage of three years, or such longer
period of time as the Committee in its
discretion may provide, from the date of grant.
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<PAGE>7
(2) the attainment of performance-based goals
established by the Committee as of the date of
grant. If the participant's compensation is
subject to the $1 million cap of Code Section
162(m), the Committee may establish such
performance goals based on one or more of the
following targets:
- total shareholder return
- earnings per share growth
- cash flow growth
- return on equity and/or
If the participant's compensation is not subject
to the $1 million cap of Code Section 162(m),
the Committee may establish the performance goal
on the basis of the preceding four targets or
any other target it may from time to time deem
appropriate in its discretion.
(3) any other conditions the Committee may
prescribe, including a non-compete requirement.
(c) Unless the Committee shall determine otherwise with
respect to participants whose compensation is not
governed by Code Section 162(m), the Committee shall
grant and administer all performance-based awards
under (b)(2) above with the intent of meeting the
criteria of Code Section 162(m) for performance-based
compensation. To this end, the outcome of all
targeted goals shall be substantially uncertain on
the date of grant; the goals shall be established no
later than 90 days following the commencement of
service to which the goals relate; the minimum period
for attaining each performance goal shall be one
year; and the Committee shall certify at the
conclusion of the performance period whether the
performance-based goals have been attained. Such
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<PAGE>8
certification may be made by noting the attainment of the
goals in the minutes of the Committee's meetings.
(d) Except as otherwise determined by the Committee, all
rights and title to restricted stock granted to a
participant under the Plan shall terminate and be
forfeited to the Company upon failure to fulfill all
conditions and restrictions applicable to such
restricted stock.
(e) Except for the restrictions set forth in this Plan
and those specified by the Committee in any
restricted stock agreement, a holder of restricted
stock shall possess all the rights of a holder of the
Company's Common Stock (including voting and dividend
rights); provided, however, that prior to vesting the
certificates representing such shares of restricted
stock (and the amount of any dividends issued with
respect thereto) shall be held by the Company for the
benefit of the participant and the participant shall
deliver to the Company a stock power executed in
blank covering such shares. As the shares vest,
certificates representing such shares shall be
released to the participant.
(f) All other provisions of the Plan not inconsistent
with this section shall apply to restricted stock or
the holder thereof, as appropriate, unless otherwise
determined by the Committee.
8. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any
certificate upon the grant, vesting or exercise of any award or
option until it has been furnished with such opinion,
representation or other document as it may reasonably deem
necessary to insure compliance with any law or regulation of the
Securities and Exchange Commission or any other governmental
authority having jurisdiction under this Plan. Certificates
delivered upon such grant or exercise may bear a legend
restricting transfer absent such compliance. Each award shall be
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<PAGE>9
subject to the requirement that, if at any time the Committee
shall determine, in its discretion, that the listing,
registration or qualification of the shares subject to such award
upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection
with, the granting of such awards or the issue or purchase of
shares thereunder, such awards may not vest or be exercised in
whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee
in the exercise of its reasonable judgment.
9. IMPACT OF TERMINATION OF EMPLOYMENT
(a) Options
If the employment of a participant terminates by
reason of the participant's disability or death, any option may
be exercised, in the case of disability, by the participant or,
in the case of death, the participant's designated beneficiary
(or personal representative if there is no designated
beneficiary) at any time prior to the earlier of the expiration
date of the option or the expiration of three years after the
date of disability or death, but only if, and to the extent that
the participant was entitled to exercise the option at the date
of disability or death. If the employment of a participant
terminates at any time on or after the participant is entitled to
receive an early retirement service pension or a normal service
pension under Sections 5.1, 5.2, or 5.3 of the Management Pension
Plan, or the equivalent plan if the participant is not a
participant in the Management Pension Plan, the participant may
exercise any options pursuant to the terms of the option
agreement governing such options. Upon termination of the
participant's employment for any reason other than retirement,
disability or death, all options held by the participant, whether
vested or not, shall be forfeited. An option that remains
exercisable after the expiration of three months from termination
of employment shall be treated as a NQSO after three months even
if it would have been treated as an ISO if exercised within three
months of termination. Notwithstanding the foregoing, an option
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<PAGE>10
may not be exercised after retirement if the Committee reasonably
determines that the termination of employment of such participant
resulted from willful acts, or failure to act, by the participant
detrimental to the Company or any of its subsidiaries.
(b) Restricted Stock Grants
(i) Passage of Time Vesting. If a participant has
been awarded restricted stock whose vesting is conditioned solely
on the passage of time, any termination of employment for any
reason, shall result in the forfeiture of all restricted stock
awards that were not vested prior to the termination of
employment except as otherwise provided by the Committee.
(ii) Performance-Based Vesting. If a participant has
been awarded restricted stock whose vesting is based solely on
the attainment of performance-based goals or partly on the
attainment of performance-based goals and partly on the passage
of time, any termination of employment except death, disability
or retirement under Sections 5.1, 5.2 or 5.3 of the Management
Pension Plan shall result in the forfeiture of all restricted
stock awards that were not vested prior to the termination of
employment. A participant who terminates employment on account
of death, disability or retirement may, if the performance-based
criteria are eventually attained, be awarded (or, in the event of
death, the participant's designated beneficiary or personal
representative if there is no designated beneficiary shall be
awarded) up to a pro rata portion of the restricted shares based
on the participant's length of service as of his or her
termination of employment over the length of the award period
ending on the date the performance-based criteria are satisfied
(or the passage of time would have been satisfied, if later, for
an award based in part on performance goals and in part on the
passage of time). The Committee shall have the discretion
whether to grant a full pro rata portion of the restricted
shares, a lesser portion or no shares at all under this
subsection (b)(ii).
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(c) Acts Not Constituting Termination of Employment.
Unless otherwise determined by the Committee, an
authorized leave of absence shall not constitute a termination of
employment for purposes of this Plan. In addition, participants
who transfer employment within the Frontier Group of companies,
including Upstate Cellular Network, shall not be considered to
have terminated employment. Any such transferred participants
shall remain eligible to exercise previously granted options and
to vest in restricted stock awards in accordance with their terms
as if no termination occurred and shall be eligible to receive
additional awards pursuant to the terms of employment with their
new employer.
10. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the
Company by reason of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights offering
to purchase Common Stock at a price substantially below fair
market value, or of any similar change affecting the Common
Stock, the number and kind of shares authorized under Section 4,
the number and kind of shares which thereafter are subject to an
award under the Plan and the number and kind of unexercised
options and unvested shares set forth in awards under outstanding
agreements and the price per share shall be adjusted
automatically consistent with such change to prevent substantial
dilution or enlargement of the rights granted to, or available
for, participants in the Plan.
11. WITHHOLDING TAXES
Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, or whenever
restricted stock vests, the Company shall have the right to
require the recipient to remit to the Company an amount
sufficient to satisfy any federal, state and/or local income and
employment withholding tax requirements prior to the delivery of
any certificate or certificates for such shares or to take any
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other appropriate action to satisfy such withholding
requirements. Notwithstanding the foregoing, subject to such
rules as the Committee may promulgate and compliance with any
requirements under Rule 16b-3, the recipient may satisfy such
obligation in whole or in part by electing to have the Company
withhold shares of Common Stock from the shares to which the
recipient is otherwise entitled.
12. NO EMPLOYMENT RIGHTS
The Plan and any awards granted under the Plan shall not
confer upon any participant any right with respect to continuance
as an employee of the Company or any subsidiary, nor shall they
interfere in any way with the right of the Company or any
subsidiary to terminate the participant's position as an employee
at any time.
13. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no
rights as a shareholder with respect thereto unless and until
certificates for the underlying shares of Common Stock are issued
to the recipient. The recipient of a restricted stock grant
shall have all rights of a shareholder except as otherwise
limited by the terms of this Plan.
14. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the
Committee or by the shareowners of the Company, except that the
Committee may not, without approval of the shareholders,
materially increase the benefits accruing to participants under
the Plan, increase the maximum number of shares as to which
awards may be granted under the Plan, change the basis for making
performance-based awards for participants whose compensation is
subject to Section 162(m), change the minimum exercise price of
options, change the class of eligible persons, extend the period
for which awards may be granted or exercised, or withdraw the
authority to administer the Plan from the Committee or a
committee of the Committee consisting solely of outside directors
unless the Board determines that inside directors may serve on
<PAGE>
<PAGE>13
the Committee. Notwithstanding the foregoing, to the extent
permitted by law, the Committee may amend the Plan without the
approval of shareholders, to the extent it deems necessary to
cause the Plan to comply with Securities and Exchange Commission
Rule 16b-3 or any successor rule, as it may be amended from time
to time. Except as required by law, no amendment, modification,
or termination of the Plan may, without the written consent of a
participant to whom any award shall theretofore have been
granted, adversely affect the rights of such participant under
such award.
15. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in
the event of a change in control of the Company (as defined in
subsection (c) below), all of a participant's restricted stock
awards shall become immediately vested to the same extent as if
all restrictions had been satisfied and all options shall become
immediately vested and exercisable, unless directed otherwise by
a resolution of the Committee adopted prior to and specifically
relating to the occurrence of such change in control.
(b) In the event of a change in control each
participant holding an exercisable option (i) shall have the
right at any time thereafter during the term of such option to
exercise the option in full notwithstanding any limitation or
restriction in any option agreement or in the Plan, and (ii) may,
subject to Committee approval and after written notice to the
Company within 60 days after the change in control, or, if the
participant is an officer subject to Section 16 of the Exchange
Act and to the extent required to exempt the transaction under
Rule 16b-3, during the period beginning on the third business day
and ending on the twelfth business day following the first
release for publication by the Company after such change of
control of a quarterly or annual summary statement of earnings,
which release occurs at least six months following grant of the
option, whichever period is longer, receive, in exchange for the
surrender of the option or any portion thereof to the extent the
option is then exercisable in accordance with clause (i), an
amount of cash equal to the difference between the fair market
value (as determined by the Committee) on the date of surrender
<PAGE>
<PAGE>14
of the Common Stock covered by the option or portion thereof
which is so surrendered and the option price of such Common Stock
under the option.
(c) For purposes of this section, "change in control"
means:
1) there shall be consummated
i. any consolidation or merger of the Company in
which the Company is not the continuing or
surviving corporation or pursuant to which any
shares of the Company's common stock are to be
converted into cash, securities or other property,
provided that the consolidation or merger is not
with a corporation which was a wholly-owned
subsidiary of the Company immediately before the
consolidation or merger; or
ii. any sale, lease, exchange or other transfer (in
one transaction or a series of related
transactions) of all, or substantially all, of the
assets of the Company; or
2) the shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the
Company; or
3) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) shall become the beneficial
owner (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, of 30% or more
of the Company's then outstanding common stock,
provided that such person shall not be a wholly-owned
subsidiary of the Company immediately before it becomes
such 30% beneficial owner; or
4) individuals who constitute the Company's Board of
Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director
<PAGE>
<PAGE>15
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by
a vote of at least three quarters of the directors
comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without
objection to such nomination) shall be, for purposes of this
clause (d), considered as though such person were a member
of the Incumbent Board.
16. EFFECTIVE DATE
The effective date of the Plan shall be the date this
restated Plan is approved by the affirmative vote of the owners
of a majority of the Company's outstanding shares of Common
Stock.
17. DEFINITIONS
Any terms or provisions used herein which are defined in
Sections 83, 162(m), 421, or 422 of the Internal Revenue Code as
amended, or the regulations thereunder or corresponding
provisions of subsequent laws and regulations in effect at the
time awards are made hereunder, shall have the meanings as
therein defined.
18. GOVERNING LAW
To the extent not inconsistent with the provisions of
the Internal Revenue Code that relate to awards, this Plan and
any award agreement adopted pursuant to it shall be construed
under the laws of the State of New York.
Dated: 4/26/95 FRONTIER CORPORATION
/s/ Josephine S. Trubek
By -------------------------
Josephine S. Trubek
Corporate Secretary
Date of Shareholder Approval: April 26, 1995
<PAGE>
<PAGE>
Exhibit 11
----------
Frontier Corporation
Computation of Earnings per Share of Common Stock
on a Fully Diluted Basis (Unaudited)
Months Ended March 31,
(In thousands, except per share data) 1995 1994
- ------------------------------------------------------------------
Income applicable to common stock $31,378 $18,019
Add: Interest on convertible debentures 139 139
-----------------
$31,517 $18,158
Less: Increase in related federal
income taxes 49 49
-----------------
Adjusted income applicable to common stock $31,468 $18,109
=================
Average Common Shares Outstanding 81,870 79,252
(excluding common stock equivalents)
Adjustments for:
Convertible Debentures 503 503
Stock Options 92 54
-----------------
Adjusted common shares assuming conversion of
outstanding Convertible Debentures and Stock
Options at beginning of each period 82,465 79,809
=================
Earnings per share of common stock on a fully
diluted basis $ .38 $ .23
=================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
1ST QUARTER 10Q 1995 FRONTIER CORPORATION
</LEGEND>
<CIK> 0000084567
<NAME> FRONTIER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> $316,363
<SECURITIES> 297
<RECEIVABLES> 182,108
<ALLOWANCES> 0
<INVENTORY> 9,276
<CURRENT-ASSETS> 537,534
<PP&E> 1,773,831
<DEPRECIATION> 812,068
<TOTAL-ASSETS> 1,792,891
<CURRENT-LIABILITIES> 224,243
<BONDS> 567,090
<COMMON> 81,871
0
22,777
<OTHER-SE> 738,889
<TOTAL-LIABILITY-AND-EQUITY> 1,792,891
<SALES> 0
<TOTAL-REVENUES> 283,418
<CGS> 4,133
<TOTAL-COSTS> 228,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,704
<INCOME-PRETAX> 50,479
<INCOME-TAX> 18,804
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,675
<EPS-PRIMARY> $.38
<EPS-DILUTED> $.38
</TABLE>
