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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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
(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 171,613,869 shares as of
October 31, 1998
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FRONTIER CORPORATION
Form 10-Q
Index
Page Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Business Segment Information for the three and nine
months ended September 30, 1998 and 1997 3
Consolidated Statements of Income for the three and nine
months ended September 30, 1998 and 1997 4
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion of Results of Operations
and Analysis of Financial Condition 12-23
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 24-25
Item 5. Other Information 25-26
Item 6. Exhibits and Reports on Form 8-K 26
Signature 27
Index to Exhibits 28-29
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<TABLE>
FRONTIER CORPORATION
Business Segment Information
(Unaudited)
3 Months Ended 9 Months Ended
September 30, September 30,
In thousands of dollars 1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Integrated Services
Revenue
Commercial $ 248,828 $ 233,266 $ 739,141 $ 696,304
Consumer 56,443 70,248 186,654 195,001
Carrier 170,712 106,610 464,398 307,964
Exited business - Prepaid - 18,581 - 46,986
- -----------------------------------------------------------------------------------
Total $ 475,983 $ 428,705 $1,390,193 $1,246,255
Cost of Access 305,232 276,901 893,048 791,487
- -----------------------------------------------------------------------------------
Gross Margin $ 170,751 $ 151,804 $ 497,145 $ 454,768
SG&A Expense 118,022 117,395 357,391 349,022
Depreciation and Amortization 27,338 27,952 78,449 73,203
Operating Income (Loss):
Operating Income Before Other
Charges $ 25,391 $ 6,457 $ 61,305 $ 32,543
Other Charges - - (6,528) (96,600)
- -----------------------------------------------------------------------------------
Total Operating Income (Loss) $ 25,391 $ 6,457 $ 54,777 $ (64,057)
Capital Expenditures $ 103,768 $ 61,965 $ 244,692 $ 156,893
Total Assets $1,566,865 $1,229,601 $1,566,865 $1,229,601
===================================================================================
Local Communications Services
Revenues $ 176,436 $ 166,772 $ 524,639 $ 497,089
Costs and Expenses 88,150 79,631 251,138 235,623
Depreciation and Amortization 27,987 27,344 84,498 82,004
- -----------------------------------------------------------------------------------
Operating Income $ 60,299 $ 59,797 $ 189,003 $ 179,462
Capital Expenditures $ 34,424 $ 25,815 $ 96,982 $ 69,379
Total Assets $ 985,551 $ 895,316 $ 985,551 $ 895,316
===================================================================================
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Corporate Operations and Other
Revenues $ 5,789 $ 11,044 $ 23,690 $ 30,869
Costs and Expenses 9,778 11,530 35,331 33,287
Depreciation and Amortization 546 897 2,135 2,662
- -----------------------------------------------------------------------------------
Operating Loss $ (4,535) $ (1,383) $ (13,776) $ (5,080)
Capital Expenditures $ 10,538 $ 6,101 $ 26,202 $ 18,076
Total Assets $ 272,780 $ 232,374 $ 272,780 $ 232,374
===================================================================================
Consolidated
Revenues $ 658,208 $ 606,521 $1,938,522 $1,774,213
Costs and Expenses 521,182 485,457 1,536,908 1,409,419
Depreciation and Amortization 55,871 56,193 165,082 157,869
- -----------------------------------------------------------------------------------
Operating Income:
Operating Income Before Other
Charges $ 81,155 $ 64,871 $ 236,532 $ 206,925
Other Charges - - (6,528) (96,600)
- -----------------------------------------------------------------------------------
Total Operating Income $ 81,155 $ 64,871 $ 230,004 $ 110,325
Capital Expenditures $ 148,730 $ 93,881 $ 367,876 $ 244,348
Total Assets $2,825,196 $2,357,291 $2,825,196 $2,357,291
===================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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FRONTIER CORPORATION
Consolidated Statements of Income
(Unaudited)
3 Months Ended 9 Months Ended
In thousands of dollars, September 30, September 30,
except per share data 1998 1997 1998 1997
- --------------------------------------------------------------------------
Revenue
Integrated Services $475,983 $428,705 $1,390,193 $1,246,255
Local Communications 176,436 166,772 524,639 497,089
Corporate Operations and Other 5,789 11,044 23,690 30,869
- ---------------------------------------------------------------------------
Total Revenue 658,208 606,521 1,938,522 1,774,213
Costs and Expenses
Operating expenses 505,270 470,568 1,489,306 1,365,721
Depreciation and amortization 55,871 56,193 165,082 157,869
Taxes other than income taxes 15,912 14,889 47,602 43,698
Other Charges - - 6,528 96,600
- ---------------------------------------------------------------------------
Total Costs and Expenses 577,053 541,650 1,708,518 1,663,888
- ---------------------------------------------------------------------------
Operating Income 81,155 64,871 230,004 110,325
Interest expense 13,527 12,710 39,516 35,100
Other income:
Gain on sale of assets 618 - 15,169 18,765
Equity earnings from 5,167 3,676 11,803 7,949
unconsolidated wireless interests
Interest income 1,064 859 3,453 2,368
Other income 1,161 1,466 3,055 2,082
- ---------------------------------------------------------------------------
Income Before Taxes and
Cumulative Effect of
Change in Accounting Principle 75,638 58,162 223,968 106,389
Income tax expense 29,881 25,711 96,634 50,506
- ---------------------------------------------------------------------------
Income Before Cumulative Effect
of Change in Accounting Principle 45,757 32,451 127,334 55,883
Cumulative effect of change in
accounting principle - - 1,755 -
- ---------------------------------------------------------------------------
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Consolidated Net Income 45,757 32,451 125,579 55,883
Dividends on preferred stock 251 253 754 764
- ---------------------------------------------------------------------------
Basic Income Applicable to Common
Stock 45,506 32,198 124,825 55,119
Diluted earnings adjustment 90 90 270 -
- ---------------------------------------------------------------------------
Diluted Income Applicable
to Common Stock $45,596 $32,288 $125,095 $55,119
===========================================================================
Basic Earnings Per Common Share
Income before cumulative effect
of change in accounting principle $ .27 $ .19 $ .74 $ .33
Cumulative effect of change in
accounting principle - - .01 -
- ---------------------------------------------------------------------------
Basic Earnings Per Common Share $ .27 $ .19 $ .73 $ .33
Average Shares Outstanding 170,842 169,179 170,434 168,674
===========================================================================
Diluted Earnings Per Common Share
Income before cumulative effect
of change in accounting principle $ .26 $ .19 $ .73 $ .33
Cumulative effect of change in
accounting principle - - .01 -
- ---------------------------------------------------------------------------
Diluted Earnings Per Common Share $ .26 $ .19 $ .72 $ .33
Average Shares Outstanding 174,696 170,206 173,865 169,527
===========================================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Balance Sheets
September 30, December 31,
In thousands of dollars, 1998 1997
except share data (Unaudited)
- ---------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 74,984 $ 26,302
Accounts receivable, (less
allowance for uncollectibles
of $36,227 and $25,100,
respectively) 435,090 380,324
Materials and supplies 13,093 12,312
Deferred income taxes 30,300 33,948
Prepayments and other 40,151 37,419
- --------------------------------------------------------
Total Current Assets 593,618 490,305
Property, plant and equipment,net 1,340,042 1,046,884
Goodwill and customer base, net 482,028 517,754
Deferred and other assets 409,508 446,574
- --------------------------------------------------------
Total Assets $2,825,196 $2,501,517
========================================================
LIABILITIES AND SHAREHOLDERS'EQUITY
Current Liabilities
Accounts payable $ 417,923 $ 343,606
Dividends payable 38,196 36,798
Debt due within one year 6,236 6,443
Taxes accrued 41,330 16,023
Other liabilities 60,351 90,108
- --------------------------------------------------------
Total Current Liabilities 564,036 492,978
Long-term debt 1,108,919 934,681
Deferred income taxes 38,071 10,927
Deferred employee benefits
obligation 101,856 88,562
- --------------------------------------------------------
Total Liabilities 1,812,882 1,527,148
- --------------------------------------------------------
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Shareholders' Equity
Preferred stock 20,126 20,126
Common stock, par value $1.00,
authorized 300,000,000
shares; 171,614,860 shares and
170,503,300 shares
issued in 1998 and 1997,
respectively 171,615 170,503
Capital in excess of par value 571,009 544,066
Retained earnings 263,420 253,435
Accumulated other comprehensive
income 3,967 3,418
- --------------------------------------------------------
1,030,137 991,548
Less -
Treasury stock, 11,076 shares in
1998 and 10,849 shares in 1997,
at cost 315 231
Unearned compensation -
restricted stock plan 17,508 16,948
- --------------------------------------------------------
Total Shareholders' Equity 1,012,314 974,369
- --------------------------------------------------------
Total Liabilities and
Shareholders' Equity $2,825,196 $2,501,517
========================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
9 Months Ended September 30,
In thousands of dollars 1998 1997
- ---------------------------------------------------------------------------
Operating Activities
Net Income $125,579 $ 55,883
- -------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Other charges 6,528 96,600
Cumulative effect of change in
accounting principle 1,755 -
Depreciation and amortization 165,082 157,869
Gain on sale of assets (15,169) (18,765)
Equity earnings from unconsolidated
wireless interests (11,803) (7,949)
Other, net 5,970 3,162
Changes in operating assets and
liabilities, exclusive of impacts of
dispositions and acquisitions:
Increase in accounts receivable (55,604) (17,850)
Increase in materials and supplies (986) (760)
Increase in prepayments and other
current assets (2,819) (2,875)
Increase in deferred and other assets (21,155) (15,155)
Increase (decrease) in accounts payable 66,081 (47,082)
Increase (decrease) in taxes accrued
and other liabilities 7,921 (37,060)
Increase (decrease) in deferred
income taxes 30,792 (29,135)
Increase in deferred employee
benefits obligation 13,294 11,348
- ------------------------------------------------------------------------
Total Adjustments 189,887 92,348
- ------------------------------------------------------------------------
Net Cash Provided by Operating Activities 315,466 148,231
- ------------------------------------------------------------------------
<PAGE>
Investing Activities
Expenditures for property, plant
and equipment (306,406) (179,392)
Deposit for capital projects (98,532) (67,571)
Proceeds from asset sales 42,250 32,889
Other investing activities (121) (366)
- ------------------------------------------------------------------------
Net Cash Used in Investing Activities (362,809) (214,440)
- ------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 214,403 302,137
Repayments of debt (13,672) (129,776)
Dividends paid (113,695) (107,824)
Treasury stock, net (84) (2,468)
Issuance of common stock, net 9,086 721
Other financing activities (13) (2,499)
- ------------------------------------------------------------------------
Net Cash Provided by Financing Activities 96,025 60,291
-----------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 48,682 (5,918)
Cash and Cash Equivalents at Beginning of Period 26,302 37,411
- ------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 74,984 $ 31,493
========================================================================
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 statements of Frontier
Corporation (the "Company" or "Frontier") included herein, are
unaudited and have been prepared in accordance with generally
accepted accounting principles for interim financial reporting
and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, the financial statements reflect all adjustments
(of a normal and recurring nature) which are necessary to
present fairly the financial position, results of operations
and cash flows for the interim periods. These financial
statements should be read in conjunction with the Annual
Report of the Company on Form 10-K for the year ended December
31, 1997 and the Form 8-K filed with the Securities and
Exchange Commission on June 17, 1998 as a result of the
Company's pooling of interests merger with GlobalCenter, Inc.,
effective February 27, 1998.
The consolidated financial information includes the accounts
of Frontier Corporation and its majority-owned subsidiaries
after elimination of all significant intercompany
transactions. Investments in entities in which the Company
does not have a controlling interest are accounted for using
the equity method.
Preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Certain prior year amounts have been reclassified to conform
with current year presentation.
Note 2: Acquisitions
On February 27, 1998, the Company acquired GlobalCenter,
Inc. (renamed "Frontier GlobalCenter, Inc." or
"GlobalCenter"), a leading provider in digital distribution,
Internet and data services headquartered in Sunnyvale,
California. Under the terms of the merger agreement, the
Company acquired all of the outstanding shares of
GlobalCenter. The total number of shares issued by the
Company to effect the merger was 6.4 million. At the time of
the merger, GlobalCenter had 1.1 million stock options and
warrants outstanding as converted into Frontier equivalents.
This transaction was accounted using the pooling of interests
method of accounting and, accordingly, historical information
has been restated to include GlobalCenter.
Combined and separate results of Frontier Corporation and
GlobalCenter were as follows:
Frontier
In Millions Corporation GlobalCenter Combined
- ---------------------------------------------------------------------------
One month ended January 31, 1998
(unaudited)
Revenues $ 205.5 $ 2.5 $ 208.0
Net income $ 14.7 $ (1.0) $ 13.7
===========================================================================
Nine months ended September 30, 1997
(unaudited)
Revenues $1,759.7 $ 14.5 $1,774.2
Net income $ 69.0 $ (13.1) $ 55.9
===========================================================================
In February 1997, the Company completed its purchase of R.G.
Data Incorporated (renamed "Frontier Network Systems Corp." or
"FNSC"), a privately held upstate New York based computer and
data networking equipment and services company. A total of
110,526 shares of Frontier common stock held in treasury were
reissued in exchange for all of the shares of R.G. Data
Incorporated. The treasury shares were acquired through open
market purchases. This transaction was accounted for as a
purchase.
Note 3: Other Charges
In the first quarter of 1998, the Company recorded a pre-
tax charge of $6.5 million associated with the acquisition of
GlobalCenter. These charges included investment banker, legal
fees and other direct costs and were subsequently liquidated
in the second quarter of 1998.
In October 1997, the Company recorded a pre-tax charge of
$86.8 million consisting of a restructuring charge of $43.0
million and a provision for asset and lease impairments of
$43.8 million. The restructuring charge of $43.0 million was
subsequently liquidated during 1998. The provision for asset
and lease impairments primarily relates to long term assets
and certain lease obligations the Company is in the process of
disposing of, or exiting. These reserves are included in the
"Other liabilities" caption in the Consolidated Balance
Sheets.
In March 1997, the Company recorded a $96.6 million pre-tax
charge primarily related to the write-off of certain network
facilities no longer required as a result of the migration of
the Company's major carrier customer's one-plus traffic volume
to other networks and the Company's overall network
integration efforts. The Company completed the
decommissioning of these redundant facilities during the first
quarter of 1998.
Note 4: Gain on Sale of Assets
In April 1998, the Company completed the sale of Minnesota
Southern Cellular Telephone Company ("Minnesota RSA No. 10"),
a wholly owned cellular partnership, and certain other
properties. The sale of these properties resulted in a
combined pre-tax gain of $15.2 million and an after-tax gain
of $2.9 million. The income tax effect on these gains of
$12.3 million is primarily impacted by the sale of Minnesota
RSA No. 10 which resulted in nondeductible goodwill. On
January 31, 1997, the Company completed the sale of its 69.5%
equity interest in the South Alabama Cellular Communications
Partnership which resulted in a pre-tax gain of $18.8 million.
Note 5: Earnings Per Share
The Company adopted the provisions of Financial Accounting
Standards Board ("FAS") Statement No. 128, "Earnings Per
Share" ("EPS") effective December 31, 1997. This statement
simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion No.
15, "Earnings Per Share", and makes them comparable to
international earnings per share standards. Basic EPS are
based on the weighted average number of shares of common stock
outstanding during the period. Diluted EPS are based on the
weighted average number of shares of common stock and common
stock equivalents (options, warrants and convertible
debentures) outstanding during the period, computed in
accordance with the treasury stock method. Historical
earnings per share have been restated to conform with the
provisions of FAS 128.
The following is a reconciliation of the denominator used in
the computation of diluted earnings per share:
3 Months Ended 9 Months Ended
September 30, September 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------
Weighted Average Shares Outstanding 170,842 169,179 170,434 168,674
Options and Warrants 3,351 524 2,928 853
Convertible Debentures (1) 503 503 503 -
- --------------------------------------------------------------------------
Weighted Average Shares Outstanding 174,696 170,206 173,865 169,527
==========================================================================
(1) Convertible debentures were anti-dilutive for the nine
months ended September 30, 1997.
Note 6: Comprehensive Income
The Company adopted the provisions of FAS 130, "Reporting
Comprehensive Income" as of January 1, 1998. This statement
establishes standards for reporting and display of
comprehensive income and its components. This statement
requires reporting, by major components and as a single total,
the change in net assets during the period from nonshareholder
sources. Adoption of this standard did not materially impact
the Company's consolidated financial position, results of
operations or cash flow. The reconciliation of net income to
comprehensive net income is as follows:
3 Months Ended 9 Months Ended
Sept.30, Sept.30,
In thousands of dollars 1998 1997 1998 1997
- ---------------------------------------------------------------------------
Net income $45,757 $32,451 $125,579 $55,883
Foreign currency translation adjustment (333) 373 549 (147)
- ---------------------------------------------------------------------------
Total comprehensive income $45,424 $32,824 $126,128 $55,736
===========================================================================
At September 30, 1998 and December 31, 1997, "Accumulated
other comprehensive income," as reflected in the Consolidated
Balance Sheets is comprised of the following:
September 30, December 31,
1998 1997
---------------------------------------------------------------------
Foreign currency translation adjustment $ 985 $ 436
Minimum pension liability 2,982 2,982
---------------------------------------------------------------------
Accumulated other comprehensive income $3,967 $3,418
=====================================================================
Note 7: New Accounting Pronouncements
The Company will adopt the provisions of FAS 131, "
Disclosures about Segments of an Enterprise and Related
Information," effective December 31, 1998. This statement
establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about
its products, services, geographic areas and major customers.
Adoption of this statement will not impact the Company's
consolidated financial position, results of operations or cash
flows. In the initial year of application, comparative
information for earlier years will be restated if necessary.
The Company is currently evaluating the disclosures that will
be required by this statement.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" ("SOP 98-5") which requires
that start-up costs be expensed as incurred. The Company
adopted the provisions of SOP 98-5 in the second quarter of
1998. Accordingly, $1.8 million, net of applicable income
taxes of $.8 million of unamortized start-up costs at December
31, 1997, have been expensed in the accompanying Consolidated
Statements of Income and is reported as a cumulative effect of
a change in accounting principle. These start-up costs are
primarily related to product development costs associated with
new business ventures.
On June 17, 1998, the Financial Accounting Standards board
issued FAS 133, "Accounting for Derivative Instruments and
Hedging Activities" effective for fiscal years beginning after
June 15, 1999. This statement standardizes the accounting for
derivatives and hedging activities and requires that all
derivatives be recognized in the statement of financial
position as either assets or liabilities at fair value.
Changes in the fair value of derivatives that do not meet the
hedge accounting criteria are to be reported in earnings.
Adoption of this standard is not expected to have a material
effect on the Company's financial position, results of
operations or cash flows.
Note 8: Cash Flows
For purposes of the Statements of Cash Flows, the Company
considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Actual interest paid was $45.0 million and $35.8 million for
the nine months ended September 30, 1998 and September 30,
1997, respectively. Income taxes paid totaled $69.7 million
and $57.3 million for the nine month periods ended September
30, 1998 and September 30, 1997, respectively. Interest costs
associated with the construction of capital assets, including
the optronics network, are capitalized. Total amounts
capitalized for the first nine months of 1998 and 1997 totaled
$13.8 million and $9.2 million, respectively.
Note 9: Commitments and Contingencies
In connection with the Company's capital program, certain
commitments have been made for the purchase of materials and
equipment . In October 1996, construction began on the
optronics network. Total capital expenditures for 1998 are
currently projected to be in the range of $550.0 million to
$650.0 million. At September 30, 1998 and December 31, 1997,
respectively, $176.5 million and $238.2 million of deposits
for the Company's optronics network build are included in the
"Deferred and other assets" caption in the Consolidated
Balance Sheets.
Item 2 - Management's Discussion of Results of Operations
and Analysis of Financial Condition
For the Three and Nine Months
Ended September 30, 1998 and 1997
The matters discussed throughout this Form 10-Q, except for
historical financial results contained herein, may be forward-
looking in nature or "forward-looking statements." Actual
results may differ materially from the forecasts or
projections presented. Forward-looking statements are
identified by such words as "expects," "anticipates,"
"believes," "intends," "plans" and variations of such words
and similar expressions. The Company believes that its
primary risk factors include, but are not limited to: changes
in the overall economy, the nature and pace of technological
change, the number and size of competitors in the Company's
market, changes in law and regulatory policy and the mix of
products and services offered in the Company's markets. Any
forward-looking statements in this September 30, 1998 Form 10-
Q should be evaluated in light of these important risk
factors. For additional disclosure regarding risk factors
refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and the Form 8-K filed with the
Securities and Exchange Commission on June 17, 1998 as result
of the Company's pooling of interest merger with GlobalCenter,
Inc., effective February 27, 1998.
DESCRIPTION OF BUSINESS
Frontier Corporation (the "Company" or "Frontier") provides
integrated telecommunications services including Internet IP
and data applications, long distance, local telephone and
wireless to business, carrier and targeted residential
customers nationwide and in certain international countries.
RESULTS OF OPERATIONS
Consolidated revenues for the third quarter of 1998 and on a
year-to-date basis were $658.2 million and $1.9 billion
respectively, representing increases of $51.7 million or 8.5%
and $164.3 million or 9.3% over the three and nine month
periods ended September 30, 1997. Excluding nonrecurring
items, operating income was $81.2 million for the three months
ended September 30, 1998 and $236.5 million for the nine month
period ended September 30, 1998 as compared to $64.9 million
and $206.9 million for the three and nine month periods ended
September 30, 1997. Operating results continue to be
positively impacted by revenue growth in Carrier Services,
Data and Competitive Local Exchange Carrier ("CLEC") services.
The most significant growth continues to be generated by the
Carrier Services business. Carrier Services revenues grew
$64.1 million or 60.1% over the third quarter of 1997, and
$156.4 million or 50.8% over the first nine months of 1997.
The growth in Carrier Services reflects a growing and diverse
base of customers, such as Level 3 Communications. The
Company's agreement with Level 3 Communications provides them
with additional bandwidth for IP-based applications and is
expected to generate $195.0 million in incremental revenue for
the Company over the five year term of the agreement.
On a quarter-to-date and year-to-date basis, excluding
nonrecurring charges, consolidated operating income grew 25%
and 14%, respectively, over the comparable prior year periods.
Normalized for other charges, costs and expenses grew $35.4
million or 6.5% for the quarter ended period and $134.7
million or 8.6% for the year-to-date period. Expenses were
driven primarily by an increase in service costs in the Local
segment during the third quarter as well as a higher cost of
access in the Integrated Services segment due to growth in
Carrier Services. These increases are offset by improvements
in selling, general and administrative expenses as a percent
of revenue as a result of the restructuring plans announced in
the fourth quarter of 1997, which entailed exiting of the
company's prepaid business, the phase down of the Integrated
Services residential consumer base and a refocusing of the
Company's core product offerings.
Results for 1998 and 1997 were affected by certain one-time
events. In April 1998, the Company completed the sale of
Minnesota Southern Cellular Telephone Company ("Minnesota RSA
No. 10"), a wholly owned cellular partnership, and certain
other properties. The sale of these properties resulted in a
combined after-tax gain of $2.9 million, or $.02 per share.
The income taxes in these transactions of $12.3 are primarily
driven by a low tax basis in the Minnesota RSA No. 10
investment which was acquired in a tax free stock transaction
and resulted in nondeductible goodwill. In the first quarter
of 1997, the Company completed the sale of its 69.5% equity
interest in the South Alabama Cellular Communications
Partnership which resulted in an after-tax gain of $11.2
million or $.07 per share. These cellular properties were not
considered to be key strategic assets of the Company.
In the second quarter of 1998 the Company adopted Position
98-5, "Reporting on the Costs of Start-Up Activities." ("SOP
98-5"). The cumulative effect of adopting SOP 98-5 was an
after-tax charge of $1.8 million, net of applicable income
taxes of $.8 million or $.01 per share. The charge is
primarily attributed to unamortized start-up costs related to
the product development costs associated with new business
ventures.
During the first quarter of 1998, the Company recorded an
after-tax charge of $5.8 million (net of taxes of $.7 million)
associated with the acquisition of GlobalCenter, Inc.
("GlobalCenter") a leading provider of digital distribution,
Internet and data services. These charges included investment
banker, legal fees and other direct costs and were
subsequently liquidated in the second quarter of 1998.
In March 1997, the Company recorded a $62.8 million charge,
net of a tax benefit of $33.8 million, primarily related to
the write-off of certain network costs no longer required for
the Company's long distance traffic volumes. As a result of
the decline in long distance traffic, an evaluation of the
existing network was performed and facilities deemed no longer
necessary to support the Company's revenue and traffic levels
were identified.
Excluding one-time events, diluted earnings per share for
the three and nine months ended September 30, 1998 were $.26
and $.75, respectively, as compared to $.19 and $.63 for the
comparable 1997 periods. Consolidated net income for the same
quarter-to-date and year-to-date periods was $45.4 million and
$130.3 million in 1998 and $32.5 million and $107.4 million in
1997, normalized for nonrecurring items.
Integrated Services
The Integrated Services segment provides domestic and
international voice, data products, video and audio
communications, digital distribution services, Internet
service and other communications products to primarily small
to mid-size business customers, carrier customers and targeted
consumer markets. Results for this segment also include CLEC
services, currently available in 31 states plus Washington
D.C., providing Frontier the ability to offer integrated local
and long distance telephone service to approximately 69% of
the United States.
Integrated Services revenue totaled $476.0 million in the
third quarter of 1998, an increase of $47.3 million or 11.0%
as compared to the third quarter of 1997. On a year-to-date
basis, revenue totaled $1,390.2 million as compared to
$1,246.3 million in the same period in 1997. The increase in
revenue is attributed to a growing base of carrier customers,
CLEC services and data revenue. Revenue increases are being
offset by the sale of the prepaid business and the de-emphasis
of selected consumer programs.
During the quarter ended September 30, 1998, Carrier
Services revenue grew $64.1 million or 60.1 % over the same
prior year period. On a year-to-date basis, Carrier Services
revenue grew $156.4 million or 50.8% over 1997. These
increases are driven by both an increase in the customer base
as well as higher levels of switched and dedicated traffic.
As the optronics network is completed, the Company anticipates
further fiber capacity sales, swaps and exchanges such as the
Level 3 Communications contract which includes a minimum
commitment of $195.0 million over the five year contract term.
Frontier provides local service as a CLEC on both a resale
and facility basis. The Company provides local services to its
customers when long distance services are also provided. At
the end of the first quarter of 1998, Frontier provided local
services in areas covering approximately 50% of the business
customers in the United States. Most of that coverage was
provided via resale of the incumbent local exchange carriers.
Within that footprint, CLEC service was initially provided
from Frontier's own switches in New York, Boston and
Minneapolis. Since then, Frontier expanded its coverage to
approximately two-thirds of the United States and turned up
facilities-based service in Seattle, Denver, Atlanta and
Chicago during the second quarter of 1998, and Cleveland and
Dallas in the third quarter of 1998. The Company anticipates
providing facilities-based service in a total of seventeen
metro areas by the end of 1998 and thirty-two additional
cities during 1999. Facilities-based service is being offered
in cities that are on the Company's optronics network, which
will provide Frontier with the opportunity to expand its
offerings of combined local and long distance services into
additional markets and leverage the optronics network. As of
September 30, 1998, Frontier is serving in excess of 180,000
CLEC ANIs, or access lines as compared to 140,000 CLEC ANIs at
then end of the second quarter of 1998. CLEC revenue growth
was 126.5% and 108.7% for the three and nine months ended
September 30, 1998, respectively as compared to the same prior
year periods.
Data Services' revenue reached $26.1 million in the third
quarter of 1998, an increase of $20.6 million, or 378.5% over
the third quarter of 1997. On a year-to-date basis, Data
Services' revenue was $66.5 million, an increase of $51.5
million or 343.3% over the same period in 1997. The continued
integration of Frontier GlobalCenter largely led to the year
over year growth. In general, growth in Data Services revenue
was driven by dedicated Internet, national frame relay and web
hosting.
Cost of access represented 64.1% of total Integrated
Services revenue for the third quarter of 1998 as compared to
64.6% for the same period in 1997. On a year-to-date basis,
cost of access represented 64.2% of total Integrated Services
revenue as compared to 63.5% for the same 1997 period. The
year-to-date higher cost of access percentage is primarily
driven by growth in Carrier Services.
Construction of the Company's optronics network was on
schedule through the first half of 1998. However, delays in
the completion of a small number of segments have moved the
expected completion date of the network into the first half of
1999. Cost benefits are expected to be fully realized by the
middle of 1999 as the SONET rings are closed and redundant
leased costs are eliminated. The Company has further enhanced
its optronics network by expanding its geographic coverage.
Through a swap agreement with WTCI, Frontier will add 1,661
additional route miles from Seattle to Denver. This agreement
will also provide the Company with a redundant SONET ring in
the northwest United States, which is expected to further
enhance the reliability and performance of the network.
Additionally, in July 1998, Frontier entered into an agreement
with Williams Communications that will extend Frontier's
optronics network into the southeast United States. In
aggregate, the Company's optronics network will have 16,000
route miles. As of September 30, 1998, approximately 69% of
the original optronics network is carrying traffic. The
Company anticipates that 90% of the original network will be
carrying traffic by the end of the year.
SG&A expense represented 24.8% of the total Integrated
Services' revenue for the third quarter of 1998 as compared to
27.4% for the same period in 1997. On a year-to-date basis,
SG&A expense represented 25.7% of the total Integrated
Services' revenue as compared to 28.0% for the same 1997
period. The lower SG&A percentage is driven mainly by revenue
growing at a higher level than SG&A due to both cost controls
and a change in revenue mix away from consumer businesses.
Operating income for the third quarter of 1998 was $25.4
million, an increase of 293.2% over the third quarter of 1997.
Operating margin as a percent of revenue for the three months
ended September 30, 1998, increased from 1.5% in the third
quarter of 1997 to 5.3% in the third quarter of 1998. On a
year-to-date basis, excluding nonrecurring items, operating
income increased 88.4% to $61.3 million. Operating income as
a percent of revenue increased from 2.6% to 4.4% for the year-
to-date periods. The increase in operating margin is
attributed to higher revenue and continuing improvement in the
cost structure as a result of the implementation of the
restructuring announced in the fourth quarter of 1997.
Frontier anticipates that its operating margins will improve
throughout 1998 and 1999, particularly in 1999, as the
optronics network is completed, higher margin data sales grow
as a percent of the revenue mix and cost structure continues
to decrease as a percent of revenue with a more focused
product mix.
Local Communications Services
Local Communications Services includes the Company's local
telephone operations, consisting of 34 telephone operating
subsidiaries in 13 states. Also included in this segment are
the revenues and expenses of Frontier Communications of
Rochester Inc., a competitive telecommunications company
formed January 1, 1995 that provides an array of services on a
retail basis in the Rochester, New York marketplace.
Consequently, the Local Communications Services segment
includes both wholesale and retail local service provided in
the Rochester, New York market.
Revenues for Local Communications Services were $176.4
million in the three month period ended September 30, 1998, an
increase of $9.7 million or 5.8% over the comparable period in
1997. For the nine month period ended September 30, 1998,
revenues were $524.6 million, an increase of $27.6 million or
5.5% over the comparable period in 1997. Access lines
increased 3.1% over the prior year to 1,024,000 and access
minutes of use increased 3.9% over the same prior year period.
On a year-to-date basis, minutes of use increased 3.2% over
the comparable 1997 period. Revenue growth during the first
nine months of 1998 is also influenced by an increased demand
for Internet services and dedicated traffic growth.
Costs and expenses in the third quarter of 1998 for Local
Communications Services were $116.1 million, an increase of
$9.2 million or 8.6% over the third quarter of 1997. Costs
and expenses for the first nine months of 1998 were $335.6
million, representing an increase of $18.0 million or 5.7%
over the same period in 1997. The increase in costs and
expenses is attributable to service quality improvements
during the quarter, increased depreciation expense, higher
operating costs for repair and maintenance in 1998 and an
increase in customer service costs due to access line growth.
A portion of the repair and maintenance increase was caused by
severe flooding and ice storms during the first half of the
year as well as a severe windstorm during the third quarter at
certain local properties.
Operating income was $60.3 million and $189.0 million for
the three and nine month periods ended September 30, 1998,
respectively, representing increases of $.5 million or .8%,
and $9.5 million or 5.3% over the comparable three and nine
month periods in the prior year. Operating margins for the
three and nine months ended September 30, 1998 are relatively
consistent with the same periods in the prior year.
Corporate Operations and Other
Corporate Operations is comprised of expenses traditionally
associated with a holding company, including executive and
board of directors' expenses, corporate finance and treasury,
investor relations, corporate planning, legal services and
business development. The Other category includes Frontier
Network Systems Corp. ("FNSC"). FNSC markets and installs
telecommunications systems and equipment. This segment also
includes wireless operations of Minnesota RSA No. 10 and the
Company's 69.5% interest in South Alabama Cellular
Communications Partnership RSAs No. 4 and No. 6. The sale of
Minnesota RSA No. 10 was finalized April 30, 1998. The
Alabama interest was sold in January 1997.
The Company completed its purchase of R.G. Data Incorporated
(renamed "Frontier Network Systems Corp." or "FNSC") in
February 1997. R.G. Data Incorporated was a privately held,
upstate New York based computer and data networking equipment
and services company.
The change in results for this segment on both a quarter-to-
date and year-to-date basis, are influenced by the sale of the
Company's wireless properties and the addition of Frontier
Network Systems Corporation in 1997.
Other Income Statement Items
Interest Expense
Interest expense was $13.5 million and $39.5 million for the
three and nine month periods ending September 30, 1998,
representing increases of $.8 million and $4.4 million,
respectively over the same periods in 1997. The overall
increase in interest expense is the result of higher levels of
debt outstanding and is partially offset by an increase in
capitalized interest of $1.2 and $4.5 million, respectively
during the same periods. The increase in capitalized interest
and levels of debt outstanding is primarily attributable to
the Company's capital program driven by the optronics network.
Gain on Sale of Assets
During 1998, the Company completed the sale of Minnesota
RSA No. 10 and certain other properties, which resulted in an
after-tax gain of $2.9 million, or $.02 per share. On January
31, 1997, the Company completed the sale of its 69.5% equity
interest in the South Alabama Cellular Communications
Partnership which resulted in an after-tax gain of $11.2
million, or $.07 per share. The Company decided to redeploy
resources into more strategic assets as the assets sold were
not considered critical to the achievement of the Company's
overall business strategy.
Equity Earnings from Unconsolidated Wireless Interests
The Company's minority interests in wireless operations and
its 50% interest in the Frontier Cellular joint venture with
Bell Atlantic are reported using the equity method of
accounting which results in the Company's proportionate share
of earnings being reflected in a single line item below
operating income.
Equity earnings from the Company's interests in wireless
partnerships were $11.8 million and $7.9 million for the nine
months ended September 30, 1998 and 1997, respectively. The
increase in equity earnings is attributable to continued
operating efficiencies as well as an increase in the number of
customers to approximately 362,000 as compared to 308,000 for
the same period in 1997.
Income Taxes
The effective income tax rate (normalized for nonrecurring
items) of 39.5% for the three and nine months ended September
30, 1998 decreased 4.7% and 2.2% over the same periods in
1997. This decrease in effective rates over the prior year is
primarily attributable to the establishment of valuation
allowances during 1997 for Frontier GlobalCenter. The use of
Frontier GlobalCenter's net operating losses are subject to
separate company limitation rules prior to its acquisition by
the Company on February 27, 1998.
Effective income tax rates as reported are impacted by
certain nonrecurring items for the three and nine months ended
September 30, 1998 and 1997. In 1997, the rates were affected
by the sale of South Alabama Cellular Communications
Partnership and the first quarter charge of $96.6 million
related to the write-off of certain network costs no longer
required for the Company's long distance traffic volumes.
During 1998, the effective rates were primarily impacted by
transaction costs associated with the GlobalCenter acquisition
as well as the sale of Minnesota RSA No. 10 in the second
quarter of 1998, which resulted in nondeductible goodwill.
FINANCIAL CONDITION
Review of Cash Flow Activity
Earnings before interest, taxes, depreciation and
amortization ("EBITDA") is a common measurement of a company's
ability to generate cash flow from operations. EBITDA should
be used as a supplement to, and not in place of, cash flow
from operating activities. The Company's EBITDA was $401.6
million and $364.8 million, excluding nonrecurring charges,
for the nine month periods ending September 30, 1998 and 1997,
respectively. The increase in EBITDA corresponds with the
improved operating results of the Company.
Cash provided from operations for the nine months ended
September 30, 1998 increased $167.2 million to $315.5 million
as a result of improved operating results as compared to the
same prior year period. Changes in working capital include an
increase in accounts receivable, accounts payable, taxes
accrued and other liabilities, and deferred income taxes.
These increases are primarily driven by the growth of the
business.
Cash used for investing activities increased $148.4 million
or 69.2% to $362.8 million. This increase is being driven by
an increase in cash expenditures for capital projects during
the first nine months of 1998 of $158.0 million or 64.0% and
is principally due to the optronics network. Cash utilized
for capital expenditures was partially funded by the proceeds
received from the sale of Minnesota RSA No. 10 and certain
other properties in the first nine months of 1998 and the sale
of the Company's equity interest in the South Alabama Cellular
Communications Partnership during 1997.
Cash provided from financing activities increased $35.7
million or 59.3% during the first nine months of 1998 as
compared to the same period in 1997. This net inflow of cash
is primarily attributable to the issuance of $200.0 million of
remarketable securities in September 1998 and is driven by the
Company's capital program, as well as the temporary
restriction on dividend payments from the Company's
subsidiary, Frontier Telephone of Rochester ("FTR") as
discussed on page 23.
Debt
The Company's total debt amounted to $1,115.2 million at
September 30, 1998, an increase of $174.0 million from
December 31, 1997. This higher debt level is driven by the
Company's capital program, including the optronics network as
well as the temporary restriction on dividend payments from
FTR.
Debt Ratio and Interest Coverage
The Company's debt ratio (total debt as a percentage of
total capitalization) was 52.4% at September 30, 1998, as
compared with 49.2% at December 31, 1997. Pre-tax interest
coverage, excluding nonrecurring charges, was 4.8 times for
the nine months ended September 30, 1998, as compared with 5.0
times for the same period in 1997.
Capital Spending
Through September 1998, gross capital expenditures amounted
to approximately $367.9 million, as compared to $244.3 million
in the prior year. The Company currently projects its capital
expenditures to be in the range of $550.0 million to $650.0
million in 1998. The increase in capital expenditures over
the comparable prior year period is primarily attributable to
the optronics network build. The Company anticipates
financing its capital program through a combination of
internally generated cash from operations as well as external
financing.
Year 2000 Issues
The Company's Year 2000 ("Year 2K") project is intended to
address potential processing errors in computer programs that
use two digits (rather than four) to define the applicable
year. The Company is providing Year 2K disclosure because its
assessment of Year 2K issues, though extensive, is not yet
complete, and because the issues, if unresolved by the Company
and by the many unaffiliated carriers and other firms with
whom the Company interconnects its networks or does business,
could have impacts that are material. The Company addresses
Year 2K issues in four areas:
State of Readiness. Frontier has developed plans to assess
and remediate key internally-developed computer systems so
they will be Year 2K compliant in advance of December 31,
1999. The plan encompasses all operating properties as well
as Frontier's corporate headquarters. It also includes both
information technology ("IT") and non-IT compliance. The
plans cover the review, and either modification, or
replacement, where necessary, of the Company's computer
applications, telecommunications networks, telecommunications
equipment and building facility equipment that directly
connect the Company's business with customers, suppliers and
service providers. Implementation of the plan began in 1996
and the Company believes that a majority of its internally-
developed IT systems are now compliant. Assessment and
remediation is expected to be substantially complete by
midyear 1999, leaving the remainder of 1999 for system
testing, carrier interoperability testing and resolution of
identified issues should they arise. These plans involve
capital expenditures for new software and hardware, as well as
costs to modify existing software. Initially, work with IT
systems was given priority over work with non-IT systems, but
the Company is comprehensively reviewing its non-IT Year 2K
readiness as well, including communications with third parties
who supply or maintain non-IT systems or significant non-IT
subsystems.
Costs. To date, the Company has committed approximately
$7.2 million to Year 2K issues, and anticipates that it will
spend an additional $4.8 million in the remainder of 1998 and
during 1999. This includes costs directly related to Year 2K
assessment and remediation and the replacement of non-
compliant systems, including acceleration of replacement of
non-compliant systems due to Year 2K issues. A substantial
portion of the total amount has been used for third party
assistance in assessment and remediation. The source of
these funds is cash generated from operations. The Year 2K
projects have not caused the Company to forego or defer, to
any material degree other critical IT projects. To date, the
costs of addressing potential Year 2K problems are not
considered material to the Company's financial condition,
results of operations or cash flows and have been consistent
with planned expenditures.
Risks. The Company is engaged primarily in
telecommunications lines of business, and therefore connects
directly and indirectly with thousands of other carriers,
inside and outside the United States. These connections are
made through switching offices of the Company and the other
carriers. The switching offices were manufactured by and
often maintained by third parties. While many other carriers
have announced plans to engage independently in Year 2K
assessment and remediation for their networks, there is a risk
that some carriers will not address or resolve Year 2K issues,
and that telecommunications will therefore be affected. If
this were to occur, it is likely that the Company would be
affected only to the same degree as the other carriers in the
telecommunications industry. A Year 2K failure in the network
of smaller carriers would not be likely to have a significant
impact on telecommunications generally, or on the Company.
However, addressing these risks is outside the Company's
control. In addition, the Company is unable at this time to
assess the degree to which the manufacturers of switches and
similar equipment have completed their assessment and
remediation of such equipment and its associated software with
respect to any other carriers. Another risk to the Company
arises with respect to the timely completion of Year 2K
remediation for the processing that occurs in the Company's IT
and non-IT systems. If the Company or its vendors are unable
to resolve such processing issues in a timely manner, it could
pose independent risks to the Company's business that could be
material. Accordingly, the Company has devoted resources it
believes to be adequate to resolve all significant identified
Year 2K issues in a timely manner, and has undertaken plans to
make information available to customers and others related to
its Year 2K activities. Consistent with the practice of other
carriers, the Company generally has declined to provide Year
2K compliance warranties or other Year 2K-related contractual
promises to customers or other persons. In addition, the
Company is engaged in communications with third party
equipment and software vendors and suppliers of services to
verify their Year 2K readiness, and plans to engage in
internetwork testing with other carriers in early 1999. Since
the Company's own optronics network is expected to be
substantially deployed well before December 31, 1999, the
Company anticipates that the impact of other carriers who may
experience business interruptions would be lessened, and such
interruptions are not currently expected to have material
adverse impacts on the Company.
Contingency Plans. The Company consistently monitors the
progress of its Year 2K program. The Company currently
anticipates that it will resolve its Year 2K issues before the
end of 1999, with the exception of any issues that involve
other carriers and are outside of its control. During 1999,
the Company will also monitor efforts undertaken through
regulatory agencies and industry groups to assure that Year 2K
preparations are completed in a timely manner. Contingency
plans (if necessary) will be developed for critical systems if
conversion or replacement projects fall behind schedule, or if
internetwork testing should identify significant risk issues,
or if broader industry concerns emerge that management
concludes require such action.
Dividends
On August 24, 1998, the Board of Directors declared the
third quarter 1998 dividend of 22.25 cents per share on the
Company's common stock, payable November 2, 1998 to
shareholders of record on October 15, 1998.
New Accounting Pronouncements
The Company will adopt the provisions of Financial
Accounting Standards Board ("FAS") Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information," effective December 31, 1998. This statement
establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about
its products, services, geographic areas and major customers.
Adoption of this statement will not impact the Company's
consolidated financial position, results of operations or cash
flows. In the initial year of application, comparative
information for earlier years will be restated if necessary.
The Company is currently evaluating the disclosures that will
be required by this statement.
On June 17, 1998, the Financial Accounting Standards
board issued FAS 133, "Accounting for Derivative Instruments
and Hedging Activities" effective for fiscal years beginning
after June 15, 1999. This statement standardizes the
accounting for derivatives and hedging activities and requires
that all derivatives be recognized in the statement of
financial position as either assets or liabilities at fair
value. Changes in the fair value of derivatives that do not
meet the hedge accounting criteria are to be reported in
earnings. Adoption of this standard is not expected to have a
material effect on the Company's financial position, results
of operations or cash flows.
OTHER ITEMS
Open Market Plan
The Company began its fourth year of operations under the
Open Market Plan in January 1998. The Open Market Plan
promotes telecommunications competition in the Rochester, New
York marketplace by providing for (1) interconnection of
competing local networks including reciprocal compensation for
terminating traffic, (2) equal access to network databases,
(3) access to local telephone numbers, (4) service provider
telephone number portability, and (5) certain wholesale
discounts to resellers of local services. The inherent risk
associated with opening the Rochester market to competition is
that some customers are able to purchase services from
competitors, which may reduce the number of retail customers
and potentially cause a decrease in the revenues and
profitability for the Company. Increased competition may also
lead to additional price decreases for services, adversely
impacting the Company's margins. However, results since
implementation of the Open Market Plan indicate that a
stimulation of demand in the use of the network and new
product revenue may offset the losses of some retail
customers. An additional positive feature of the Open Market
Plan provides that the Company can retain additional earnings
achieved through operating efficiencies. Previously, these
earnings would have been shared with customers. After three
years of operating in a competitive marketplace, the Rochester
local exchange carrier retains a market share of approximately
98% of wholesale and approximately 96% of retail local service
access lines in the Rochester, New York operating territory.
During the seven year period of the Open Market Plan, rate
reductions of $21.0 million (the "Rate Stabilization Plan")
will be implemented for Rochester area consumers, including
$15.0 million of which occurred through 1997, and an additional
$1.5 million which commenced in January 1998. Rates charged
for basic residential and business telephone service may not be
increased during the seven year period of the Plan. FTR is
allowed to raise prices on certain enhanced products such as
caller ID and call forwarding.
The NYSPSC has issued a Notice Inviting Comments in which it
has proposed to make further changes in pricing under the Open
Market Plan. These pricing changes would reduce some prices to
competitors for network elements and other offerings, but would
also reduce the amount paid by FTR for reciprocal compensation.
The issues being addressed by the NYSPSC have been under
consideration since 1995. The Company cannot predict the
ultimate impact of any NYSPSC action in this proceeding,
although it is not expected to be material.
Management believes there are significant market and
business opportunities associated with the Company's Open
Market Plan. However, there are also uncertainties associated
with the Open Market Plan. In the Company's opinion, the most
significant risks relate to increased competition in the
Rochester, New York market and the risk inherent in the Rate
Stabilization Plan.
There can be no assurance that the changing regulatory
environment will not have a negative impact on the Company.
Dividend Policy
The Open Market Plan prohibits the payment of dividends by
the Company's subsidiary, FTR, to Frontier if (i) FTR's senior
debt is 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.
Dividend payments to Frontier also require the Company's
directors to certify that such dividends will not impair FTR's
service quality or its ability to finance its short and long-
term capital needs on reasonable terms while maintaining an
S&P debt rating target of "A".
In 1996, FTR failed to achieve the service quality levels
required by the Open Market Plan. On December 19, 1996,
pursuant to the Open Market Plan, FTR requested the New York
State Public Service Commission ("NYSPSC") staff to exclude
certain months from the calculation used to measure service
quality, due to operating conditions considered by management
to be abnormal and beyond FTR's control. In April 1997, FTR
received notice from the NYSPSC that its request for a waiver
of certain conditions in the Open Market Plan related to
service quality results was denied. The NYSPSC's ruling has
resulted in a temporary restriction on the flow of cash
dividends from FTR to Frontier and a refund to FTR's customers
of $.9 million. Reserves sufficient to cover the refund were
established in 1996. On October 22, 1997, the NYSPSC adopted
an order requiring FTR to issue refunds of approximately $2.60
per customer. These refunds have been completed.
On October 15, 1998, the NYSPSC approved a proposal by FTR
for revision of its service incentive plan that:
- requires a rebate of $8.00 per customer to resolve all
service penalties for 1997 and 1998,
- establishes a rebate/client program for missed
appointments, and
- increases the amounts at risk for the period 1999-2001
should the Company fail to meet service levels.
The Company also has committed to increase capital
expenditures to a minimum of $80.0 million in 1998 and to add
employees in service-affecting areas.
The temporary restriction of dividend payments to Frontier
will remain in place until the NYSPSC is satisfied that FTR's
service levels demonstrate that FTR has rectified the service
deficiency.
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 fifteen corporate
defendants, including Rotelcom Inc., a wholly-owned subsidiary
of the registrant held through intervening subsidiaries (now
named Frontier Network Systems Corp. or FNSC). The plaintiffs
seek environmental "response costs incurred by the plaintiffs
pursuant to a consent decree entered into by plaintiffs with
the United States Environmental Protection Agency (the "EPA").
Two additional defendants were named in 1994. In addition to
FNSC, 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; Phillip 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"). On November 21, 1997, the EPA
issued a Proposed Remedial Action Plan" ("PRAP"). In the
PRAP, the EPA outlined four alternative plans for remediating
the site. Recently, a number of parties, excluding the
Company, have reached agreement with the EPA to fund certain
future remedy costs at the site consistent with the PRAP.
There has been no allocation of liability by the Court as
among or between the plaintiffs or defendants.
Since February 1994, a significant number of former American
Sharecom, Inc. ("ASI") shareholders have filed and amended
several and various complaints in Hennepin County (Minnesota)
District Court. Included among the defendants are ASI, its
former principal shareowners, Steven Simon and James Weinert,
and Frontier. These suits allege generally that Simon and
Weinert, with and through ASI, embarked upon a scheme to gain
control of ASI and acquire all of its stock through common law
fraud, breach of fiduciary duty and certain violations of the
Minnesota Business Corporation Act. This Act requires
shareowners in a closely held corporation to act fairly toward
one another and refrain from misappropriation. Another action
by a few former ASI shareholders who dissented from the
cashout merger that finally took ASI private was recently
dismissed by the federal court in Minnesota. The claims
against Frontier maintain only that Frontier controls the
disposition of the restricted Frontier stock which was issued
to Simon and Weinert in connection with the acquisition of ASI
and that such stock should be held in trust for the benefit of
the plaintiffs. At this time Simon and Weinert have
negotiated settlements with the majority of former ASI
shareholders who had asserted claims.
Although it is too early to determine the outcome of the
remaining lawsuits, Frontier, ASI and the other defendants
each are contesting the claims. In connection with the
acquisition of ASI by Frontier, Simon and Weinert agreed to
indemnify and defend the Company for these claims.
On April 10, 1997, Jeff Thompson filed a purported class
action on behalf of himself and all other similarly-situated
persons in Circuit Court for Marengo County Alabama. Named as
defendants are Frontier Corporation, Frontier Subsidiary
Telco, Inc. and Frontier Communications of the South, Inc.
("defendants"). The complaint also reserves the right to add
additional defendants and identifies all of Frontier's
telephone subsidiaries. Concomitant with filing the
complaint, plaintiff also filed an ex parte motion for
conditional class certification which the Court granted. It
conditionally certified a class consisting of "All persons or
entities in the United States who have been charged by
defendants or their subsidiaries or affiliates a fee for
`inside wire maintenance' without having given their
affirmative acceptance to a repair service contract;
specifically excluded from this class, however, are all
employees, agents, officers, directors and affiliates of any
of the Defendants and all persons or entities who have pending
and/or previously filed individual (non-class) lawsuits
against any of the defendants for the same claims set forth in
the Complaint." On January 30, 1998, the Supreme Court of
Alabama issued a writ of mandamus to the trial court ordering
it to vacate its conditional class certification.
In the complaint, plaintiff alleges that the Company
improperly marketed and sold deregulated inside wire
maintenance services to defendant's telephone subscribers
pursuant to a "negative option" or "default sale" approach
from January 1, 1987 to the present. Plaintiff alleges that
the defendants have never had enforceable contracts with their
customers for inside wire maintenance services, and have
defrauded their customers. Plaintiff requests a refund of all
moneys paid for inside wire maintenance services. This case
is similar to a number of cases filed against other carriers
with local telephone properties.
The Company believes that the inside wire programs in place
in its telephone properties have been implemented in accordance
with the law and any applicable regulatory requirements. The
liability, if any, is not expected to be material. The Company
is vigorously defending against this suit, but cannot predict
the outcome at this time.
The Open Market Plan discussion in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations, Part I, Item 2 of this document is incorporated
herein by reference.
Item 5. Other Information
On October 9, 1997, the Federal Communications Commission
("FCC") ordered carriers that receive "dial around" calls from
payphones (certain calls sent without coins as 800 or other
calls, with special access codes) to compensate payphone
owners at the rate of 28.4 cents per completed call.
The per-call compensation rate became effective on October
7, 1997. The FCC has yet to determine how to address the
payphone compensation obligation for the period from November
7, 1996 through October 6, 1997. The Company intends to
pursue challenges to the FCC order with other carriers. On
July 15, 1998, an administrative complaint was filed by Bell
Atlantic seeking $3.2 million in compensation for use of its
payphones since October 7, 1997. On August 17, 1998, an
administrative complaint was filed by Ameritech with the FCC
seeking $1.9 million in compensation for the use of its
payphones since October 7, 1997. On September 1, 1998, SBC
Communications filed an administrative complaint with the FCC
seeking $3.3 million in compensation for the use of its
payphones since October 7, 1997. The filing of the complaints
has had no effect upon the position of the Company with
respect to payphone compensation. The Company cannot predict
the outcome of future proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) See Index to Exhibits for exhibits required by Item
601 of Regulation S-K.
The Company hereby agrees to furnish the Securities and
Exchange Commission a copy of each of the indentures or other
instruments defining the rights of security holders of the
long-term debt securities of the Company and any of its
subsidiaries for which consolidated or unconsolidated
financial statements are required to be filed.
(b) Reports on Form 8-K.
The Company filed the following report(s) on Form 8-K during
the quarter ended September 30, 1998.
SEC Filing Date Item No. Financial Statements
------------------------------------------------------------------
September 21, 1998 7 Financial Statements and
Exhibits
No reports on Form 8-K were filed subsequent to the quarter
ended September 30, 1998.
<PAGE>
<PAGE>
SIGNATURE
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: November 13, 1998 /s/ Rolla P. Huff
By: --------------------------------
Rolla P. Huff
Executive Vice President and
Chief Financial Officer
(principal financial officer)
<PAGE>
<PAGE>
FRONTIER CORPORATION
INDEX TO EXHIBITS
Exhibit
Number Description Reference
- -----------------------------------------------------------------------
3.1 Restated Certificate of Incorporation Incorporated by reference to
dated January 24, 1995 Exhibit 3.1 to Form 10-K
for the year ended
December 31, 1995
3.2 Amendment to Restated Certificate Incorporated by reference to
of Incorporation dated April 9, 1995 Exhibit 3.2 to Form 10-K
for the year ended
December 31, 1995
3.3 By-laws Filed herewith
4.1 Indenture between the Company and Incorporated by reference to
Manufacturers Hanover Trust Company, Exhibit 4.12 to Form 10-K
Trustee, dated September 1, 1986 for the year ended
December 31, 1986
4.2 First Supplemental Indenture to said Incorporated by reference to
Indenture with Manufacturers Hanover Exhibit 4(b) to Registration
Trust Company, Trustee, dated Statement 33-32035
December 1, 1989
4.3 10.46% Non-Negotiable Convertible Incorporated by reference to
Debenture due October 27, 2008 from Exhibit 4.14 to Form 10-K
the Company to The Walters Trust for the year ended
December 31, 1988
4.4 9% Debenture due August 15, 2021 Incorporated by reference to
Exhibit 4.16 to Form 10-K
for the year ended
December 31, 1991
4.5 $250M Revolving Credit Agreement Incorporated by reference to
between the Company and Chase Exhibit 4.5 to Form 10-K
Manhattan Bank, N.A. dated August 9, for the year ended
1995. December 31, 1995
4.6 Indenture between the Company and Incorporated by reference to
Chase Manhattan Bank, N.A., Trustee, Exhibit 4.1 to Form 8-K
dated 5/21/97, $300M 7.25% Notes due dated May 23, 1997.
May 15, 2004.
4.7 Supplemental Indenture between the Incorporated by reference to
Company and Chase Manhattan Bank, N.A. Exhibit 4.7 to Form 10-K
as Trustee, dated December 8, 1997, for the year ended
$100M 6.25% Notes due December 15, December 31, 1997.
2009.
11 Statement re: Computation of Diluted Filed herewith
Earnings Per Common Share (Unaudited)
27 Financial Data Schedule Filed herewith
EXHIBIT 3.3
FRONTIER CORPORATION
By-Laws
As Revised Effective March 21, 1983
(And as amended 7/16/84, 11/19/84, 2/17/86, 2/16/87,
4/22/87, 11/20/89, 2/19/90, 11/19/90, 4/24/91,
4/29/92, 4/21/93, 4/27/94, 9/19/94, 1/1/95, 4/26/95, 8/16/95
1/22/96, 4/30/96, 6/16/97, 9/15/97, 3/1/98, 4/29/98, 10/12/98)
ARTICLE I
SHAREHOLDERS
Section 1 - Annual Meeting.
An annual meeting of shareholders for the election of
Directors and the transaction of other business shall be held at
such time on any day in the month of April in each year or on such
other date as shall be fixed by the Board of Directors.
Section 2 - Special Meetings.
Special Meetings of the shareholders may be called by the
Board of Directors. Such meeting shall be held at such time as
may be fixed in the notice of meeting.
Section 3 - Place of Meeting.
Meetings of shareholders shall be held at such place, within
or without the State of New York, as may be fixed in the notice of
meeting.
Section 4 - Notice of Meeting.
Notice of each meeting of shareholders shall be in writing
and shall state the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called.
A copy of the notice of any meeting shall be given,
personally, or by mail, not less than ten or more than fifty days
before the date of the meeting, to each shareholder entitled to
vote at such meeting. If mailed, such notice is given when
deposited in the United States mail, with postage thereon prepaid,
directed to the shareholder at the shareholder's address as it
appears on the record of shareholders, or, if the shareholder
shall have filed with the Secretary of the Corporation a written
request that notices be mailed to some other address, then
directed to the shareholder at such other address.
3/21/83
(2)
Section 5 - Inspectors of Election.
The Board of Directors, in advance of any shareholders'
meeting, may appoint one or more inspectors to act at the meeting
or any adjournment thereof. If inspectors are not so appointed,
the person presiding at a shareholders' meeting may, and on the
request of any shareholder entitled to vote at such meeting shall,
appoint two inspectors. Each inspector, before entering upon the
discharge of the inspector's duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of the inspector's
ability.
The inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented
at the meeting, the existence of a quorum, and the validity and
effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all
shareholders. On request of the person presiding at the meeting
or any shareholder entitled to vote at such meeting, the
inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of
any fact found by them. Any report or certificate made by them
shall be prima facie evidence of the facts stated and of the vote
as certified by them.
Section 6 - List of Shareholders at Meeting.
A list of shareholders as of the record date, certified by
the Secretary or any Assistant Secretary or by the Transfer Agent,
if any, shall be produced at the meeting of shareholders upon the
request of any shareholder at such meeting or prior thereto. If
the right to vote at any meeting is challenged, the inspectors of
election, or person presiding at such meeting, shall require such
list of shareholders to be produced as evidence of the right of
the persons challenged to vote at such meeting, and all persons
who appear from such list to be shareholders entitled to vote at
such meeting may vote at such meeting.
3/21/83
(3)
Section 7 - Qualification of Voters.
Every shareholder of record of common stock of the
Corporation shall be entitled at every meeting of shareholders to
one vote for every share of common stock held by the shareholder
in the shareholder's name on the record of shareholders, subject,
however, to the voting rights granted to the holders of Cumulative
Preferred Stock of the Corporation upon default in dividends
thereon.
Section 8 - Quorum of Shareholders.
The holders of a majority of the shares entitled to vote at
such meeting shall constitute a quorum at a meeting of
shareholders for the transaction of any business, provided that
when a specified item of business is required to be voted on by a
class or series, voting as a class, the holders of a majority of
the shares of such class or series shall constitute a quorum for
the transaction of such specified item of business.
The shareholders present, in person or by proxy, and
entitled to vote may, by a majority of votes cast, adjourn the
meeting despite the absence of a quorum.
Section 9 - Vote of Shareholders.
Directors shall, except as otherwise required by law, or by
the certificate of incorporation as permitted by law, be elected
by a plurality of the votes cast at a meeting of shareholders by
the holders of shares entitled to vote in the election.
Whenever any corporate action, other than the election of
Directors, is to be taken by vote of the shareholders, it shall,
except as otherwise required by law, or by the certificate of
incorporation as permitted by law, be authorized by a majority of
the votes cast at a meeting of shareholders by the holders of
shares entitled to vote thereon.
Section 10 - Proxies.*
Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting
may authorize another person or persons to act for that
shareholder by
proxy. Any proxy may be transmitted, authorized or executed in
any manner permitted by the New York Business Corporation Law. No
proxy shall be valid after the expiration of eleven months from
the
3/21/83
*Revised 3/1/98
(4)
date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the shareholder executing it
except in those cases where an irrevocable proxy permitted by
statute has been given.
Section 11 - Fixing Record Date.**
For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent or dissent from any
proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action,
the Board of Directors may fix, in advance, a date as the record
date for any such determination of shareholders. Such date shall
not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
Section 12 - Order of Business.*
The order of business at each meeting of shareholders shall
be as determined by the chairman of the meeting. The chairman of
the meeting shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts and
things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of
procedures for the maintenance of order and safety, limitations on
the time allotted to questions or comments on the affairs of the
Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof, and the opening and
closing of the voting polls.
At any special meeting of shareholders, only such business
may be transacted which is related to the purpose or purposes set
forth in the notice of such meeting.
At any annual meeting of shareholders, only such business
(other than the nomination or election of directors) shall be
conducted as shall have been brought before the annual meeting (i)
by or at the direction of the chairman of the meeting or (ii) by
any shareholder who is a holder of record at the time of the
giving of the notice provided for in this Section 12, who is or
will be entitled to vote at the meeting and who complies with the
procedures set forth in this Section 12.
3/21/83
*Revised 9/19/94
**Revised 3/1/98
(5)
For business (other than the nomination or election of
directors) properly to be brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof
in proper written form to the Secretary. To be timely, a
shareholder's notice must be addressed to the Secretary and
delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90
days prior to the anniversary date of the immediately preceding
annual meeting; provided, however, that in the event that the date
of the annual meeting is more than 30 days earlier or more than 60
days later than such anniversary date, notice by the shareholder
to be timely must be so delivered or received not earlier than the
90th day prior to such annual meeting and not later than the close
of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. To be in
proper written form, a shareholder's notice to the Secretary shall
set forth in writing as to each matter the shareholder proposes to
bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books,
of the shareholder proposing such business; (iii) the class and
number of shares of the Corporation which are beneficially owned
by the shareholder; (iv) a representation that the shareholder is
or will be entitled to vote at such annual meeting and intends to
appear in person (or send a qualified representative) or by proxy
to present such proposal at the meeting; and (v) any material
interest of the shareholder in such business. The foregoing notice
requirements shall be deemed satisfied by a shareholder if the
shareholder has notified the Corporation of his or her intention
to present a proposal at an annual meeting and such shareholder's
proposal has been included in a proxy statement that has been
prepared by management of the Corporation to solicit proxies for
such annual meeting; provided, however, that if such shareholder
does not appear in person (or send a qualified representative) or
by proxy to present such proposal at such annual meeting, the
Corporation need not present such proposal for a vote at such
meeting, notwithstanding that proxies in respect of such vote may
have been received by the Corporation. Notwithstanding anything in
the By-Laws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth
in this Section 12. The chairman of an annual meeting shall, if
the facts warrant, determine that business was not properly
brought before the annual meeting in accordance with the
provisions of this
3/21/83
(6)
Section 12 and, if he should so determine, he shall so declare to
the annual meeting and any such business not properly brought
before the annual meeting shall not be transacted and any proposal
contemplated by such business shall be void.
ARTICLE II
BOARD OF DIRECTORS
Section 1 - Power of Board and Qualification of Directors.
The business of the Corporation shall be managed under the
direction of its Board of Directors, each of whom shall be at
least twenty-one years of age.
Section 2 - Number of Directors.*
At the annual meeting of shareholders, the shareholders
shall elect eleven directors.
Section 3 - Election, Term and Qualifications of Directors.
At each annual meeting of shareholders, Directors shall be
elected to hold office until the next annual meeting and until
their successors have been elected and qualified. No person shall
be eligible for election or reelection to the Board of Directors
after reaching seventy years of age, or in the case of a retired
Chairman of the Board of Directors or a retired President of the
Corporation, after reaching sixty-seven years of age. The term of
any Director who is also an Officer of the Corporation or any
subsidiary of the Corporation, other than the Chairman of the
Board or the President of the Corporation, shall end on the date
of termination from active employment and such officer shall
thereafter be ineligible for reelection to the Board of Directors.
Section 4 - Quorum of the Board: Action by the Board.
One-third of the entire Board of Directors shall constitute
a quorum for the transaction of business, and the vote of a
majority
3/21/83
*Revised 7/16/84, 2/17/86, 11/20/89, 2/19/90, 11/19/90, 4/24/91,
4/27/94, 1/1/95, 4/26/95, 8/16/95, 1/22/96, 4/30/96, 6/16/97,
9/15/97, 4/29/98, 10/12/98
(7)
of the Directors present at the time of such vote, if a quorum is
then present, shall be the act of the Board.
Section 5 - Action Without a Meeting.
Any action required or permitted to be taken by the Board or
any committee thereof may be taken without a meeting if all
members of the Board or of the committee consent in writing to the
adoption of the resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board or
committee shall be filed with the minutes of the proceedings of
the Board or committee.
Section 6 - Participation in Board Meetings by Conference
Telephone.
Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of such Board or
committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by
such means shall constitute presence in person at a meeting.
Section 7 - Meetings of the Board.
An annual meeting of the Board of Directors shall be held in
each year directly after adjournment of the annual shareholders'
meeting. Regular meetings of the Board shall be held at such
times as may from time to time be fixed by resolution of the
Board. Special meetings of the Board may be held at any time upon
the call of the Chairman of the Board of Directors, if such there
be, the President or any two Directors.
Meetings of the Board of Directors shall be held at such
place, within or without the State of New York, as from time to
time may be fixed by resolution of the Board for annual and
regular meetings and in the notice of meeting for special
meetings. If no place is so fixed, meetings of the Board shall be
held at the office of the Corporation in Rochester, New York.
No notice need be given of annual or regular meetings of the
Board of Directors. Notice of each special meeting of the Board
shall be given by oral, telegraphic or written notice, duly given
or sent or mailed to each Director not less than one (1) day
before such meeting.
3/21/83
(8)
Section 8 - Resignation.
Any Director may resign at any time by giving written notice
to the Chairman of the Board of Directors, if such there be, to
the President or to the Secretary. Such resignation shall take
effect at the time specified in such written notice, or if no time
be specified, then on delivery. Unless otherwise specified in the
written notice, the acceptance of such resignation by the Board of
Directors shall not be needed to make it effective.
Section 9 - Newly Created Directorships and Vacancies.
Newly created directorships resulting from an increase in
the number of directors and vacancies occurring in the Board of
Directors may be filled by vote of the Board. If the number of the
directors then in office is less than a quorum, such newly created
directorships and vacancies may be filled by vote of a majority of
the directors then in office. A director elected to fill a
vacancy shall be elected to hold office for the unexpired term of
such director's predecessor.
Section 10 - Executive and Other Committees of Directors.*
The Board of Directors, by resolution, adopted by a majority
of the entire Board, shall designate from among its members an
Executive Committee consisting of three or more Directors, a
majority of whom are outside directors.
The Executive Committee shall have all the authority of the
Board, except that it shall not have authority as to the following
matters:
(1)The submission to shareholders of any action that needs
shareholders' approval;
(2)The filling of vacancies in the Board or in any
committee;
(3)The amendment or repeal of the By-Laws, or the adoption
of new By-Laws;
(4)The amendment or repeal of any resolution of the Board
which, by its terms, shall not be so amendable or
repealable;
(5)The fixing of compensation of the directors for serving
on the Board or on any Committee;
3/21/83
*Revised 11/19/84, 4/22/87, 4/29/92, 4/21/93, 8/16/95
(9)
(6)The fixing or amendment of the compensation, benefits and
perquisites of the chief executive officer.
The Board of Directors, by resolution by a majority of the
entire Board, may designate from among its members an Audit
Committee consisting of three or more outside directors. The
Audit Committee shall, among other things, review the scope of
audit activities, review with management significant issues
concerning
litigation, contingencies or other material matters which may
result in either potential liability of the Company or significant
exposure to the Company, review significant matters of corporate
ethics, review security methods and procedures, review the
financial reports and notes, and make reports and recommendations
with respect to audit activities, findings, and reports of the
independent public accountants and the internal audit staff of the
Company.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members a
Committee on Directors consisting of three or more outside
directors. The Committee on Directors shall, among other things,
review performance of incumbent directors, act as a nominating
committee, and consider and report to the entire Board of
Directors on all matters relating to the selection, qualification,
compensation and duties of the members of the Board of Directors
and any committees of the Board of Directors.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members a
Committee on Management consisting of three or more outside
directors. The Committee on Management shall, among other things,
fix or amend the compensation, benefits and perquisites of all
executive officers of the Company and recommend such for the chief
executive officer, select and administer executive compensation
plans and employee benefit plans which have Company stock as an
investment option, review succession planning for the Company and
review with management significant human resources issues. The
compensation, benefits and perquisites of the chief executive
officer shall be set by the outside directors of the full Board
upon the recommendation of the Committee on Management.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members other
committees each consisting of three or more directors.
Unless a greater proportion is required by the resolution
designating a committee of the Board of Directors, a quorum for
the transaction of business of a committee shall consist of (a) a
3/21/83
(10)
majority of the entire authorized number of members of the
Executive Committee or (b) one-third of the entire authorized
number of members of any other committee of the Board of
Directors, but in no event fewer than two persons. The vote of a
majority of the members of a committee present at the time of the
vote concerning the transaction of business of that committee or
of any specified item of business of that committee if a quorum is
present at such time, shall be the act of such committee.
Any committee may fix the time and place of holding its
regular meetings and, if so fixed, no notice of such regular
meeting shall be necessary. Special meetings of any committee may
be called at any time by the Chairman of the Board of Directors,
if such there be, by the chief executive officer, by the
President, by the Chairperson of that committee, or by any two
members of that committee. Notice of each special meeting of any
committee shall be given by oral, telegraphic or written notice,
including notice via facsimile machine, duly given or sent or
mailed to each member of that committee not less than one day
before such meeting.
Section 11 - Compensation of Directors.
The Board of Directors shall have authority to fix the
compensation of directors for services in any capacity.
Section 12 - Indemnification.*
(a) Generally.
To the full extent authorized or permitted by law, the
Corporation shall indemnify any person ("indemnified Person")
made, or threatened to be made, a party to any action or
proceeding, whether civil, at law, in equity, criminal,
administrative, investigative or otherwise, including any action
by or in the right of the Corporation, by reason of the fact that
he, his testator or intestate, ("Responsible Person"), whether
before or after adoption of this Section 12, (1) is or was a
director or officer of the Corporation, or (2), if a director or
officer of the Corporation, is serving or served, in any capacity,
at the request of the Corporation, any other corporation, or any
partnership, joint venture, trust, employee benefit plan or other
enterprise, or (3), if not a director or officer of the
Corporation, is serving or served, at the request of the
3/21/83
*Revised 2/16/87
(11)
Corporation, as a director or officer of any other corporation or
any partnership, joint venture, trust, employee benefit plan or
other enterprise, against all judgments, fines, penalties, amounts
paid in settlement (provided the Corporation shall have given its
prior consent to such settlement, which consent shall not be
unreasonably withheld by it) and reasonable expenses, including
attorneys' fees, incurred by such Indemnified Person with respect
to any such threatened or actual action or proceeding, and any
appeal therein, provided only that (x) acts of the Responsible
Person which were material to the cause of action so adjudicated
or otherwise disposed of were not (i) committed in bad faith or
(ii) were not the result of active and deliberate dishonesty, and
(y) the Responsible Person did not personally gain in fact a
financial profit or other advantage to which he was not legally
entitled.
(b) Advancement of Expenses.
All expenses reasonably incurred by an Indemnified Person in
connection with a threatened or actual action or proceeding with
respect to which such person is or may be entitled to
indemnification under this Section 12 shall be advanced or
promptly reimbursed by the Corporation to him in advance of the
final disposition of such action or proceeding, upon receipt of an
undertaking by him or on his behalf to repay the amount of such
advances, if any, as to which he is ultimately found not to be
entitled to indemnification or, where indemnification is granted,
to the extent such advances exceed the indemnification to which he
is entitled. Such person shall cooperate in good faith with any
request by the Corporation that common counsel be used by the
parties to an action or proceeding who are similarly situated
unless to do so would be inappropriate due to an actual or
potential conflict of interest.
(c) Procedure for Indemnification.
(1) Not later than thirty (30) days following final
disposition of an action or proceeding with respect to which the
Corporation has received written request by an Indemnified Person
for indemnification pursuant to this Section 12, if such
indemnification has not been ordered by a court, the Board of
Directors shall meet and find whether the Responsible Person met
the standard of conduct set forth in paragraph (a) of this Section
12, and, if it finds that he did, or to the extent it so finds,
shall authorize such indemnification.
3/21/83
(12)
(2) Such standard shall be found to have been met unless (a)
a judgment or other final adjudication adverse to the Indemnified
Person establishes that subparagraphs (x) or (y) of paragraph (a)
of this Section 12 were violated, or (b) if the action or
proceeding was disposed of other than by judgment or other final
adjudication, the Board finds in good faith that, if it had been
disposed of by judgment or other final adjudication, such judgment
or other final adjudication would have been adverse to the
Indemnified Person and would have established a violation of
subparagraphs (x) or (y) of paragraph (a) of this Section 12.
(3) If indemnification is denied, in whole or part, because
of an adverse finding by the Board in the absence of a judgment or
other final adjudication, or because the Board believes the
expenses for which indemnification is requested to be
unreasonable, such action by the Board shall in no way affect the
right of the Indemnified Person to make application therefor in
any court having jurisdiction thereof, and in such action or
proceeding the issue shall be whether the Responsible Person met
the standard of conduct
set forth in paragraph (a) of this Section 12, or whether the
expenses were reasonable, as the case may be (not whether the
finding of the Board with respect thereto was correct) and the
determination of such issue shall not be affected by the Board's
finding. If the judgment or other final adjudication in such
action or proceeding establishes that the Responsible Person met
the standard set forth in paragraph (a) of this Section 12, or
that the disallowed expenses were reasonable, or to the extent
that it does, the Board shall then find such standard to have been
met or the expenses to be reasonable, and shall grant such
indemnification, and shall also grant to the Indemnified Person
indemnification of the expenses incurred by him in connection with
the action or proceeding resulting in the judgment or other final
adjudication that such standard of conduct was met, or if pursuant
to such court determination such person is entitled to less than
the full amount of indemnification denied by the Corporation, the
portion of such expenses proportionate to the amount of such
indemnification so awarded.
(4) A finding by the Board pursuant to this paragraph (c)
that the standard of conduct set forth in paragraph (a) of this
Section 12 has been met shall mean a finding of the Board or
shareholders as provided by law.
(d) Contractual Article.
This Section 12 shall be deemed to constitute a contract
between the Corporation and each person who is a Responsible
Person
3/21/83
(13)
at any time while this Section 12 is in effect. No repeal or
amendment of this Section 12, insofar as it reduces the extent of
the indemnification of any person who could be a Responsible
Person shall without his written consent be effective as to such
person with respect to any event, act or omission occurring or
allegedly occurring prior to (1) the date of such repeal or
amendment if on that date he is not serving in any capacity for
which he could be a Responsible Person, or (2) the thirtieth
(30th) day following delivery to him of written notice of such
repeal or amendment as to any capacity in which he is serving on
the date of such repeal or amendment, other than as a director or
officer of the Corporation, for which he could be a Responsible
Person, or (3) the later of the thirtieth (30th) day following
delivery to him of such notice or the end of the term of office
(for whatever reason) he is serving as director or officer of the
Corporation when such repeal or amendment is adopted, with respect
to being a Responsible Person in
that capacity. No amendment of the Business Corporation Law
shall, insofar as it reduces the permissible extent of the right
of indemnification of a Responsible Person under this Section 12,
be effective as to such person with respect to any event, act or
omission occurring or allegedly occurring prior to the effective
date of such amendment irrespective of the date of any claim or
legal action in respect thereto. This Section 12 shall be binding
on any successor to the Corporation, including any corporation or
other entity which acquires all or substantially all of the
Corporation's assets.
(e) Non-exclusivity.
The indemnification provided by this Section 12 shall not be
deemed exclusive of any other rights to which any person covered
hereby may be entitled other than pursuant to this Section 12. The
Corporation is authorized to enter into agreements with any such
person or persons providing them rights to indemnification or
advancement of expenses in addition to the provisions therefor in
this Section 12 to the full extent permitted by law.
Section 13 - Notification of Nominations.*
Subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends
or upon liquidation, nominations for the election of Directors may
be made by the Board of Directors or by any shareholder who is a
3/21/83
*Revised 9/19/94
(14)
shareholder of record at the time of the giving of the notice of
nomination provided for in this Section 13 and who is entitled to
vote for the election of Directors. Any shareholder of record who
is or will be entitled to vote for the election of Directors at a
meeting may nominate persons for election as Directors only if
timely written notice of such shareholder's intent to make such
nomination is given to the Secretary. To be timely, a
shareholder's notice must be addressed to the Secretary and
delivered to or mailed and received at the principal executive
offices of the Corporation (i) with respect to an election to be
held at an annual meeting of shareholders, not less than 60 days
nor more than 90 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30 days
earlier or more than 60 days later than such anniversary date,
notice by the shareholder to be timely must be so delivered or
received not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of
the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such
meeting is first made and (ii) with respect to an election to be
held at a special meeting of shareholders for the election of
Directors, not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of
the date of the special meeting and of the nominees to be elected
at such meeting. Each such notice shall set forth: (a) the name
and address, as they appear on the Corporation's books, of the
shareholder who intends to make the nomination, and the name and
address of the person or persons to be nominated; (b) the class
and number of shares of the Corporation which are beneficially
owned by the shareholder: (c) a representation that the
shareholder is or will be entitled to vote at the meeting and
intends to appear in person (or send a qualified representative)
or by proxy at the meeting to nominate the person or persons
specified in the notice; (d) a description of all arrangements or
understandings between the shareholder and such nominee and any
other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the
shareholder; (e) such other information regarding each nominee
proposed by such shareholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had each nominee been
nominated, or intended to be nominated, by the Board of Directors;
and (f) the consent of each nominee to serve as a Director of the
3/21/83
(15)
Corporation if so elected. The chairman of the meeting may refuse
to acknowledge the nomination of any person not made after
compliance with the foregoing procedure. Only such persons who are
nominated in accordance with the procedures set forth in this
Section 13 shall be eligible to serve as Directors of the
Corporation and any purported nomination or purported election not
made in accordance with the procedures set forth in this Section
13 shall be void.
ARTICLE III
OFFICERS
Section 1 - Officers.
The Board of Directors, as soon as may be practicable after
the annual election of directors, may elect a Chairman of the
Board of Directors and shall elect a President, one or more Vice
Presidents (one or more of whom may be designated Executive Vice
President), a Secretary and a Treasurer, and such other officers
as it may determine. Any two or more offices may be held by the
same person, except the office of President and Secretary.
Section 2 - Term of Office and Removal.
Each officer shall hold office for the term for which each
officer is elected or appointed, and until a successor has been
elected or appointed and qualified.
Section 3 - Powers and Duties.
The officers of the Corporation shall each have such powers
and authority and perform such duties in the management of the
Corporation as set forth in these By-Laws and as from time to time
prescribed by the Board of Directors. To the extent not set forth
in these By-Laws or so prescribed by the Board of Directors, they
shall each have such powers and authority and perform such duties
in the management of the Corporation, subject to the control of
the Board, as generally pertain to their respective offices.
3/21/83
(16)
In addition to the powers and authority above, each officer
has the powers and duties set out below.
(a) Chairman of the Board of Directors
The Chairman of the Board of Directors, if such there be,
shall preside at all meetings of the Board. The Chairman of
the Board of Directors may be the chief executive officer of
the Corporation, and if so designated, may preside at all
meetings of shareholders.
(b) President
The President shall be the chief operating officer and shall
have responsibility for the general management of the
business of the Corporation, subject only to the supervision
of the Board of Directors, the Executive Committee and the
Chairman of the Board of Directors, as chief executive
officer, if such there be. If there is no Chairman of the
Board of Directors or if the Chairman of the Board of
Directors is not the chief executive officer, then the
President shall be the chief executive officer of the
Corporation. The President may preside at all meetings of
shareholders, when present, and at meetings of the Board of
Directors in the absence of the Chairman of the Board, if
such there be.
(c) Executive Vice President
The Executive Vice President or the Executive Vice
Presidents, if such there be, shall assist the President in
the management of the Corporation and, as may be designated
by the Board of Directors, in the event of the death,
resignation, removal, disability or absence of the
President, an Executive Vice President shall possess the
powers and perform the duties of the President for the
period of such disability or absence or until the Board of
Directors elects a President.
(d) Vice President
Each Vice President shall assist the President in the
management of the Corporation and, in the absence or
incapacity of the President and Executive Vice Presidents,
3/21/83
(17)
and in order as fixed by the Board, possess the powers and perform
the duties of the President for the period of such absence or
incapacity, and shall possess such other powers and perform such
other duties as the Board of Directors may prescribe.
(e) Secretary
The Secretary shall issue notices of all meetings of
shareholders and directors where notices of such meetings
are required by law or these By-Laws, and shall keep the
minutes of such meetings. The Secretary shall sign such
instruments and attest such documents as require signature
or attestation and affix the corporate seal thereto where
appropriate and shall possess such other powers and perform
such other duties as usually pertain to the office or as the
Board of Directors may prescribe.
(f) Treasurer
The Treasurer shall have general charge of, and be
responsible for, the fiscal affairs of the Corporation and
shall sign all instruments and documents as require such
signature, and shall possess such other powers and perform
such other duties as usually pertain to the office or as the
Board of Directors may prescribe.
(g) Assistant Officers
Any Assistant Officer elected by the Board of Directors
shall assist the designated officer and shall possess that
officer's powers and perform that officer's duties as
designated by that officer, and shall possess such other
powers and perform such other duties as the Board of
Directors may prescribe.
Section 4 - Records.
The Corporation shall keep (a) correct and complete books
and records of account; (b) minutes of the proceedings of the
shareholders, Board of Directors and any committees of the Board;
and (c) a current list of the directors and officers and their
residence addresses.
3/21/83
(18)
The Corporation shall also keep at its office in the State
of New York or at the office of its transfer agent or registrar in
the State of New York, if any, a record containing the names and
addresses of all shareholders, the number and class of shares held
by each and the dates when they respectively became the owners of
record thereof.
Section 5 - Checks and Similar Instruments.
All checks and drafts on the Corporation's bank accounts and
all bills of exchange and promissory notes and all acceptances,
obligations and other instruments, for the payment of money, shall
be signed by facsimile or otherwise on behalf of the Corporation
by such officer or officers or agent or agents as shall be
thereunto authorized from time to time by the Board of Directors.
Section 6 - Voting Shares Held by the Corporation.
Either the President or the Secretary may vote shares of
stock held by the Corporation in other corporations and may
execute proxies for and on behalf of the Corporation for such
purpose.
ARTICLE IV
SHARE CERTIFICATES AND LOSS THEREOF - TRANSFER OF SHARES
Section 1 - Form of Share Certificate.
The shares of the Corporation shall be represented by
certificates, in such forms as the Board of Directors may from
time to time prescribe, signed by the Chairman of the Board if
such there be, or the President or a Vice President, and the
Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of the officers
upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. In case any officer
who
3/21/83
(19)
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with
the same effect as if such person were such officer at the date of
issue.
Section 2 - Lost, Stolen or Destroyed Share Certificates.
No certificate or certificates for shares of the Corporation
shall be issued in place of any certificate alleged to have been
lost, stolen or destroyed, except upon production of such evidence
of the loss, theft or destruction, and upon such indemnification
and payment of costs of the Corporation and its agents to such
extent and in such manner as the Board of Directors may from time
to time prescribe. The Board of Directors, in its discretion, and
as a condition precedent to the issuance of any new certificate,
may require the owner of any certificate alleged to have been
lost, stolen or destroyed to furnish the Corporation with a bond,
in such sum and with such surety or sureties as it may direct, as
indemnity against any claim that may be made against the
Corporation in respect of such lost, stolen or destroyed
certificate.
Section 3 - Transfer of Shares.
Shares of the Corporation shall be transferable on the books
of the Corporation by the registered holder thereof in person or
by the registered holder's duly authorized attorney, by delivery
for cancellation of a certificate or certificates for the same
number of shares, with proper endorsement consisting of either a
written assignment of the certificate or a power of attorney to
sell, assign or transfer the same or the shares represented
thereby, signed by the person appearing by the certificate to be
the owner of the shares represented thereby, either written
thereon or attached thereto, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably
require. Such endorsement may be either in blank or to a
specified person, and shall have affixed thereto all stock
transfer stamps required by law.
*Except as otherwise provided by law, not more than twenty
percent of the aggregate number of shares of stock of the
Corporation outstanding in any class or series shall at any time
be owned of record or beneficially or voted by or for the account
of aliens (as defined below). Shares of stock shall not be
transferable on the books of the Corporation to any alien if, as a
3/21/83
*Revised 9/19/94
(20)
result of such transfer, the aggregate number of shares of stock in
any class or series owned by or for the account of aliens shall be
twenty percent or more of the number of shares of stock then
outstanding in such class or series. The Board of Directors may
make such rules and regulations as it shall deem necessary or
appropriate so that accurate records may be kept of the shares of
stock of the Corporation owned of record or beneficially or voted
by or for the account of aliens or to otherwise enforce the
provisions of this Section 3.
As used in this Section 3, the word "alien" shall mean the
following and their representatives: any individual not a citizen
of the United States of America; a partnership, unless a majority
of the partners are non-aliens and a majority interest in the
partnership profits is held by nonaliens; a foreign government; a
corporation, joint-stock company or association organized under the
laws of a foreign country; any other corporation of which any
officer or more than one-fourth of the directors are aliens, or of
which more than one-fourth of any class or series of stock is owned
of record or voted by or for the account of aliens; and any other
corporation, joint-stock company or association controlled directly
or indirectly by one or more of the above.
ARTICLE V
OTHER MATTERS
Section 1 - Corporate Seal.
The corporate seal shall have inscribed thereon the name of
the Corporation and such other appropriate legend as the Board of
Directors may from time to time determine. In lieu of the
corporate seal, when so authorized by the Board, a facsimile
thereof may be affixed or impressed or reproduced in any other
manner.
Section 2 - Amendments.
By-Laws of the Corporation may be amended, repealed or
adopted by vote of the holders of the shares at the time entitled
to vote in the election of any directors. By-Laws may also be
3/21/83
(21)
amended, repealed, or adopted by the Board of Directors, but any
By-Law adopted by the Board may be amended or repealed by the
shareholders entitled to vote thereon as hereinabove provided.
If any By-Law regulating an impending election of directors
is adopted, amended or repealed by the Board of Directors, there
shall be set forth in the notice of the next meeting of
shareholders for the election of directors the By-Law so adopted,
amended or repealed, together with a concise statement of the
changes made.
3/21/83
Exhibit 11
Frontier Corporation
Computation of Diluted Earnings Per Common Share
(Unaudited)
3 Months Ended 9 Months Ended
In thousands of dollars, September 30, September 30,
except per share data 1998 1997 1998 1997
- -----------------------------------------------------------------------------
Basic Income Applicable to Common Stock $ 45,506 $ 32,198 $124,825 $ 55,119
Interest expense on convertible
debentures, net of tax (1) 90 90 270 -
- -----------------------------------------------------------------------------
Diluted Income Applicable to Common
Stock $ 45,596 $ 32,288 $125,095 $ 55,119
============================================================================
Weighted Average Shares Outstanding
(Basic) 170,842 169,179 170,434 168,674
Stock options and warrants 3,351 524 2,928 853
Convertible debentures 503 503 503 -
- -----------------------------------------------------------------------------
Weighted Average Shares Outstanding
(Diluted) 174,696 170,206 173,865 169,527
=============================================================================
Diluted Earnings Per Common Share $ .26 $ .19 $ .72 $ .33
=============================================================================
(1) Convertible debentures were anti-dilutive for the nine months ended
September 30, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FRONTIER CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000084567
<NAME> FRONTIER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 74,984
<SECURITIES> 0
<RECEIVABLES> 471,317
<ALLOWANCES> 36,227
<INVENTORY> 13,093
<CURRENT-ASSETS> 593,618
<PP&E> 2,822,507
<DEPRECIATION> 1,482,465
<TOTAL-ASSETS> 2,825,196
<CURRENT-LIABILITIES> 564,036
<BONDS> 1,108,919
0
20,126
<COMMON> 171,615
<OTHER-SE> 820,573
<TOTAL-LIABILITY-AND-EQUITY> 2,825,196
<SALES> 0
<TOTAL-REVENUES> 1,938,522
<CGS> 59,793
<TOTAL-COSTS> 1,708,518
<OTHER-EXPENSES> 3,055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,516
<INCOME-PRETAX> 223,968
<INCOME-TAX> 96,634
<INCOME-CONTINUING> 127,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,755
<NET-INCOME> 125,579
<EPS-PRIMARY> .73
<EPS-DILUTED> .72
</TABLE>
