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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 March 31, 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 171,212,786 shares as
of April 30, 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 months ended March 31, 1998
and March 31, 1997 3
Consolidated Statements of Income for
the three months ended March 31, 1998
and March 31, 1997 4
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 5
Consolidated Statements of Cash Flows
for the three months ended
March 31, 1998 and March 31, 1997 6
Notes to Consolidated Financial
Statements 7-11
Item 2. Management's Discussion of Results
of Operations and Analysis of
Financial Condition 12-19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19-21
Item 4. Submission of Matters to a
Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Index to Exhibits 25
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FRONTIER CORPORATION
Business Segment Information
(Unaudited)
3 Months Ended March 31,
In thousands of dollars 1998 1997
- --------------------------------------------------------------
Integrated Services
Revenues $449,546 $405,299
Costs and Expenses 433,353 395,095
- --------------------------------------------------------------
Operating Income (Loss):
Operating Income Before Other
Charges $ 16,193 $ 10,204
Other Charges (6,528) (96,600)
- --------------------------------------------------------------
Total Operating Income (Loss) $ 9,665 $ (86,396)
Depreciation and Amortization $ 25,930 $ 22,939
Capital Expenditures $ 55,285 $ 57,471
Identifiable Assets $1,393,897 $1,173,516
- --------------------------------------------------------------
Local Communications Services
Revenues $173,098 $ 163,330
Costs and Expenses 109,506 103,616
- --------------------------------------------------------------
Total Operating Income $ 63,592 $ 59,714
Depreciation and Amortization $ 28,343 $ 27,285
Capital Expenditures $ 22,969 $ 15,356
Identifiable Assets $946,520 $ 903,355
- --------------------------------------------------------------
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Corporate Operations and Other
Revenues $ 9,354 $ 8,947
Costs and Expenses 14,597 10,831
- --------------------------------------------------------------
Total Operating Loss $ (5,243) $(1,884)
Depreciation and Amortization $ 961 $ 862
Capital Expenditures $ 7,251 $ 6,733
Identifiable Assets $256,821 $205,937
- --------------------------------------------------------------
Consolidated
Revenues $631,998 $577,576
Costs and Expenses 557,456 509,542
- --------------------------------------------------------------
Operating Income (Loss):
Operating Income Before Other
Charges $ 74,542 $68,034
Other Charges (6,528) (96,600)
- --------------------------------------------------------------
Total Operating Income (Loss) $ 68,014 $(28,566)
Depreciation and Amortization $ 55,234 $51,086
Capital Expenditures $ 85,505 $79,560
Identifiable Assets $2,597,238 $2,282,808
==============================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Statements of Income
(Unaudited)
In thousands of dollars, 3 Months Ended March 31,
except per share data 1998 1997
- ------------------------------------------------------------
Revenues $631,998 $577,576
- ------------------------------------------------------------
Costs and Expenses
Operating expenses 485,747 445,451
Depreciation and amortization 55,234 51,086
Taxes other than income taxes 16,475 13,005
Other charges 6,528 96,600
- ------------------------------------------------------------
Total Costs and Expenses 563,984 606,142
- ------------------------------------------------------------
Operating Income (Loss) 68,014 (28,566)
Interest expense 13,431 10,618
Other income and expense:
Gain on sale of assets - 18,765
Equity earnings from unconsolidated
wireless interests 2,458 1,490
Interest income 1,198 734
Other income, net 892 87
- -------------------------------------------------------------
Income (Loss) Before Taxes 59,131 (18,108)
Income taxes 25,217 (2,206)
- -------------------------------------------------------------
Consolidated Net Income (Loss) 33,914 (15,902)
Dividends on preferred stock 251 254
- -------------------------------------------------------------
Basic Income (Loss) Applicable to
Common Stock 33,663 (16,156)
Diluted earnings adjustment 90 -
- -------------------------------------------------------------
Diluted Income (Loss) Applicable to
Common Stock $ 33,753 $(16,156)
- -------------------------------------------------------------
Basic Earnings (Loss) Per
Common Share $ .20 $ (.10)
Average shares outstanding 170,071 167,006
- -------------------------------------------------------------
Diluted Earnings (Loss)
Per Common Share $ .20 $ (.10)
Average shares outstanding 172,804 167,006
=============================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Balance Sheets
March 31, December 31,
1998 1997
In thousands of dollars, except share data (Unaudited)
- ---------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 59,302 $ 26,303
Accounts receivable, (less allowance for
uncollectibles of $29,034 and $25,100,
respectively) 411,941 380,324
Materials and supplies 13,794 12,312
Deferred income taxes 30,315 33,948
Prepayments and other 32,531 37,418
- -------------------------------------------------------------
Total Current Assets 547,883 490,305
Property, plant and equipment, net 1,126,825 1,046,884
Goodwill and customer base,net 511,073 517,754
Deferred and other assets 411,457 446,574
- -------------------------------------------------------------
Total Assets $2,597,238 $2,501,517
=============================================================
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 371,362 $ 340,104
Dividends payable 38,306 36,798
Debt due within one year 6,468 9,943
Taxes accrued 34,489 16,023
Other liabilities 72,641 90,108
- -------------------------------------------------------------
Total Current Liabilities 523,266 492,976
Long-term debt 985,524 934,680
Deferred income taxes 19,693 10,927
Deferred employee benefits obligation 88,370 88,562
- -------------------------------------------------------------
Total Liabilities 1,616,853 1,527,145
- -------------------------------------------------------------
Shareholders' Equity
Preferred stock 20,126 20,126
Common stock, par value $1.00,
authorized 300,000,000
shares; 170,899,781 shares and
170,500,676 shares
issued in 1998 and 1997, respectively 170,900 170,501
Capital in excess of par value 552,322 541,458
Retained earnings 248,328 253,045
Accumulated other comprehensive income 3,863 3,418
- -------------------------------------------------------------
995,539 988,548
Less -
Treasury stock, 10,949 shares in 1998 and
10,849 shares in 1997, at cost 244 231
Unearned compensation - restricted stock
plan 14,910 13,945
- -------------------------------------------------------------
Total Shareholders' Equity 980,385 974,372
- -------------------------------------------------------------
Total Liabilities and Shareholders'
Equity $2,597,238 $2,501,517
=============================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
3 Months Ended March 31,
In thousands of dollars 1998 1997
- ------------------------------------------------------------------------
Operating Activities
Net income (loss) $33,914 $(15,902)
- ------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Other charges 6,528 96,600
Depreciation and amortization 55,234 51,086
Gain on sale of assets - (18,765)
Equity earnings from unconsolidated
wireless interests (2,458) (1,490)
Other, net 447 304
Changes in operating assets and liabilities,
exclusive of impacts of dispositions
and acquisitions:
Increase in accounts receivable (30,819) (10,059)
Increase in materials and supplies (1,482) (1,414)
Decrease (increase) in deferred income
taxes 25,397 (39,870)
Decrease (increase) in prepayments and
other assets 5,035 (7,792)
Increase in deferred and other assets (8,434) (7,669)
Increase in accounts payable 10,617 34,482
Increase (decrease) in taxes accrued and
other liabilities 12,399 (37,151)
(Decrease) increase in deferred employee
benefits obligation (191) 587
- ----------------------------------------------------------------------
Total adjustments 72,273 58,849
- ----------------------------------------------------------------------
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Net cash provided by operating activities 106,187 42,947
- ----------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and equipment (20,203) (45,596)
Deposits for capital projects (64,036) (31,761)
Investment in cellular partnerships (798) 784
Proceeds from asset sales - 32,889
Other investing activities - 118
- ----------------------------------------------------------------------
Net cash used in investing activities (85,037) (43,566)
- ----------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 55,656 40,721
Repayments of debt (8,051) -
Dividends paid (36,746) (35,871)
Treasury stock, net (13) (2,468)
Issuance of common stock 1,003 274
- ----------------------------------------------------------------------
Net cash provided by financing activities 11,849 2,656
- ----------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 32,999 2,037
Cash and Cash Equivalents at Beginning of Period 26,303 37,411
- ----------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $59,302 39,448
======================================================================
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.
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 shares issued by the Company to
effect the merger were 6.4 million. At the time of the
merger, GlobalCenter had 1.1 million stock options and
warrants outstanding as converted into Frontier equivalents.
As they vest, the options and warrants are exercisable for
the purchase of an equal number of Frontier shares. This
transaction has been accounted for as a pooling of interests
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
============================================================
Three months ended March 31, 1997
(unaudited)
Revenues $ 573.4 $ 4.2 $ 577.6
Net income $ (13.6) $ (2.3) $ (15.9)
============================================================
In February 1997, the Company completed its purchase of
R.G. Data Incorporated (renamed "Frontier Data 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 $6.5
million pre-tax acquisition related charge associated with
the GlobalCenter transaction. These charges include
investment banker, legal fees and other direct costs.
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. These reserves are included in the "Other
liabilities" caption in the Consolidated Balance Sheets.
The remaining restructuring reserve balance of $8.6 million
at March 31, 1998, which primarily relates to program and
cancellation activities, is adequate to cover the exit
activities. 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.
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
On January 31, 1997, the Company completed the sale of its
69.5% equity interest in the South Alabama Cellular
Communications Partnership. The sale resulted in a pre-tax
gain of $18.8 million. The Company decided to redeploy these
resources into more strategic assets as the assets sold were
not critical to the achievement of the Company's overall
business strategy.
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:
Three Months Ended March 31, 1998 1997
- ----------------------------------------------------------
Average Common Shares Outstanding 170,071 167,006
Options and Warrants (1) 2,230 -
Convertible Debentures (1) 503 -
- ----------------------------------------------------------
Adjusted Common Shares 172,804 167,006
==========================================================
(1) Convertible debentures and common stock
equivalents are not applicable to the calculation for
1997 due to the Company's net loss position. The
adjustment to net income for the computation of diluted
earnings per share represents the after-tax effect of
interest expense on convertible debentures.
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
impact the Company's consolidated financial position,
results of operations or cash flow. The Company has
determined that at December 31, 1998 it will display
comprehensive income in the Consolidated Statements of
Shareholders' Equity. The reconciliation of net income
(loss) to comprehensive net income (loss) is as follows:
In thousands of dollars
Three Months Ended March 31, 1998 1997
- ---------------------------------------------------------
Net income (loss) $33,914 $(15,902)
Foreign currency
translation adjustment 445 (309)
- ---------------------------------------------------------
Total comprehensive income (loss)$34,359 $(16,211)
=========================================================
At March 31, 1998 and December 31, 1997, accumulated other
comprehensive income, as reflected in the Consolidated
Balance Sheets is comprised of the following:
March 31, December 31,
1998 1997
- ----------------------------------------------------------
Foreign currency
translation adjustment $ 881 $ 436
Minimum pension liability 2,982 2,982
--------------------------------------------------------
Accumulated other
comprehensive income $3,863 $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. 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 will adopt the provisions of SOP 98-5 in the second
quarter of 1998. Adoption of this statement will not have a
material effect on the Company's consolidated 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 $12.9 million for both three
month periods ending March 31, 1998 and March 31, 1997.
Income taxes paid totaled $11.5 and $2.2 million for the
periods ended March 31, 1998 and March 31, 1997,
respectively. Interest costs associated with the
construction of capital assets, including the SONET based
fiber optic network build, are capitalized. Total amounts
capitalized for the first three months of 1998 and 1997 were
$3.7 million and $2.5 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
SONET based fiber optic network build. Total capital
expenditures for 1998 are currently projected
to be in the range of $525.0 million. Through March 31,
1998, cumulative capital expenditures relating to the SONET
build totaled $294.7 million. At March 31, 1998 and
December 31, 1997, respectively, $212.1 million and $238.2
million of deposits for the SONET build are included in the
"Deferred and other assets" caption in the Consolidated
Balance Sheets.
Note 10: Subsequent Event
On April 30, 1998, the Company completed the sale of
Minnesota Southern Cellular Telephone Company. The Company
does not anticipate that the after-tax gain on the sale will
be material to its financial statements.
Item 2 - Management's Discussion of Results of Operations
and Analysis of Financial Condition
For the Three Months Ended March 31, 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
March 31, 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.
DESCRIPTION OF BUSINESS
Frontier Corporation (the "Company" or "Frontier")
provides integrated telecommunications services to business,
carrier and targeted residential customers nationwide, in
Canada and the United Kingdom.
RESULTS OF OPERATIONS
Consolidated
Consolidated revenues for the first quarter of 1998 were
$632.0 million, an increase of $54.4 million or 9.4% over
the first quarter of 1997. Excluding non-recurring items,
operating income was $74.5 million, an increase of $6.5
million or 9.6% over the same period for the prior year.
Operating results continue to be positively impacted by
revenue growth in several areas. The most significant growth
was generated by the Carrier Services business. Carrier
Services revenues grew $28.8 million or 27.4% over the first
quarter of 1997. The Carrier Services group growth reflects
a growing base of customers including US West. The
Company's calling card services agreement with US West
provides US West the ability to offer calling card services
to its customers and is expected to generate in excess of
$50.0 million in incremental revenue for the Company over
the 30 month term of the agreement.
On a year-to-date basis, excluding non-recurring items,
consolidated operating margins were consistent with 1997.
Operating expenses grew $47.9 million or 9.4%, offsetting
revenue growth. Increased expenses were primarily associated
with new revenue initiatives and distribution channels and
are proportionate to the increase in revenue for the same
period.
Reported diluted earnings per share for the first quarter
of 1998 was $.20, an increase of $.30 over the first
quarter of 1997. Consolidated net income was $33.9 million,
compared to a loss of $15.9 million for the comparable
1997 period. Excluding non-recurring items, diluted earnings
per share for the first quarter of 1998 and 1997 was $.23
and $.21, respectively. Consolidated net income for the same
periods was $39.7 million and $35.6 million, respectively.
Operating results for 1998 and 1997 were affected by
certain one-time events. In the first quarter of 1998, the
Company acquired GlobalCenter, Inc., ("GlobalCenter") a
leader in digital distribution, Internet and data services
and recorded a pre-tax acquisition related charge of $6.5
million ($5.8 million post-tax) associated with the
transaction. These charges include investment banker, legal
fees and other direct costs. In the first quarter of 1997,
the Company recorded a $62.8 million charge, net of a tax
benefit of $33.8 million, relating to the write-off of
certain leased network facilities no longer required for
long distance traffic volumes. During the first quarter of
1997, the Company also completed the sale of its 69.5%
equity interest in the South Alabama Cellular Communications
Partnership. The sale resulted in an after-tax gain of $11.2
million.
Business Segments
The Company reports its operating results in three
segments: Integrated Services (formerly "Long Distance
Communications Services"), Local Communications Services and
Corporate Operations and Other. A review of the 1998 and
1997 first quarter results of each business segment follows.
Integrated Services
Integrated Services revenues totaled $449.5 million in the
first quarter of 1998, an increase of $44.2 million or 10.9%
over the first quarter of 1997. Revenue growth was driven by
a growing base of carrier customers, the CLEC customer base
and data sales from Frontier GlobalCenter.
During the first quarter of 1998, Carrier Services revenue
grew $28.8 million or 27.4%. Significant multi-year carrier
agreements, including the agreement with US West, drove this
increased growth.
The Company provides local service as a CLEC primarily on
a resale basis. The Company also currently provides local
services as a facilities-based CLEC from its own switches in
New York City, Minneapolis and Boston. The Company
anticipates that up to four additional switches will be
installed by the end of 1998, and two will be installed
during 1999. The switches are being placed in cities that
are on the Company's SONET network, which will provide
Frontier with the opportunity to expand its offerings of
combined local and long distance services into additional
markets. As of March 31, 1998, Frontier is serving in
excess of 116,000 ANIs, or access lines, predominantly
through resale in markets where it is not the incumbent
local exchange carrier. At the end of 1997, Frontier was
serving in excess of 100,000 ANIs.
GlobalCenter's revenues for the first quarter of 1998 were
$8.5 million, an increase of 104.7 % over the first quarter
of 1997. Revenue growth was attributable to the digital
distribution product set which includes web hosting as well
as an increase in customer base.
Operating income for the Integrated Services segment,
excluding non-recurring charges, increased 58.7% to $16.2
million as compared to the same 1997 period. Operating
margin as a percent of revenue, excluding non-recurring
charges, increased from 2.5% in the first quarter of 1997 to
3.6% in the first quarter of 1998. The increase in operating
margin in the first quarter is driven by higher revenue and
an improvement in the cost structure. Cost of access
represented approximately 63.8% of total integrated services
revenue for the first three months of 1998 as compared to
64.4% for the same period in 1997. The lower cost of access
percentage reflects an increase in volume as fixed costs are
spread over a larger traffic base, a change in the revenue
mix, and a reduction in costs associated with international
traffic. Construction of the Company's SONET based fiber
optic network is on schedule through the first quarter of
1998. The network is expected to be completed by the end of
1998. As of March 31, 1998, approximately 30% of the
network is carrying traffic. Frontier anticipates that its
operating margins will improve throughout 1998, particularly
in the later portion of the year as the SONET network is
completed and marketing and sales investments are realized.
Local Communications Services
Local Communications Services includes the Company's local
telephone operations, consisting of 33 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 $173.1
million for the first quarter of 1998, an increase of $9.8
million or 6.0% over the comparable period in 1997. The
revenue growth in this segment includes demand for high
capacity special access lines, Internet service and enhanced
calling features. Access lines increased 2.7% and access
minutes of use increased 3.8% over the same period in the
prior year.
Costs and expenses in the first quarter of 1998 for Local
Communications Services were $109.5 million, an increase of
$5.9 million or 5.7% over the first quarter of 1997. The
increase is attributed to 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 quarter of 1998.
Operating income for the first quarter of 1998 was $63.6
million, an increase of $3.9 million or 6.5% over the first
quarter of 1997. Operating margins for the three months
ended March 31, 1998 improved to 36.7% in 1998.
During late 1995, management committed to a major switch
consolidation plan at its Frontier Telephone of Rochester,
Inc. and Frontier Communications of New York subsidiaries.
The three-year plan to consolidate and reduce the number of
host switches by over 60% is projected to improve network
efficiency and reduce the cost of maintenance and software
upgrades. As of March 31, 1998 the project is substantially
complete.
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 Inc.
("FNS"). FNS markets and installs telecommunications systems
and equipment. This segment also includes wireless
operations from Minnesota RSA No. 10 and the Company's 69.5%
interest in Alabama RSA No. 4 and No. 6. The sale of
Minnesota RSA No. 10 closed on April 30, 1998. The Alabama
interest was sold in January 1997.
The Company completed its purchase of R.G. Data
Incorporated (renamed "Frontier Data Systems Inc.") in
February 1997. R.G. Data Incorporated was a privately held,
upstate New York based computer and data networking
equipment and services company. R.G. Data Incorporated's
operations are consolidated with FNS for reporting purposes.
The change in results for this segment are influenced by
the sale of the Company's wireless property and the addition
of Frontier Data Systems in the prior year.
Other Income Statement Items
Interest Expense
Interest expense was $13.4 million and $10.6 million in
the three month periods ending March 31, 1998 and March 31,
1997, representing an increase of $2.8 million or 26.5%.
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 million for the
same period. The increase in capitalized interest is
primarily attributable to the Company's capital program
driven by the SONET based fiber optic network build.
Gain on Sale of Assets
In February 1997, the Company completed the sale of its
69.5% equity interest in the South Alabama Cellular
Communications Partnership. The sale 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 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 accounted for using the equity
method. This method of accounting 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 in the first quarter of 1998 were $2.5
million, an increase of $1.0 million or 65.0% over the first
quarter of 1997. The improvement in equity earnings is
driven by customer growth and increased operating
efficiencies as compared to the same period in the prior
year.
Income Taxes
The effective income tax rate (normalized for nonrecurring
items) of 39.5% and 40.3% for the quarter ended March 31,
1998 and 1997, respectively, is relatively consistent.
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 $129.8 million and $119.1 million, excluding
nonrecurring charges, for the three month periods ending
March 31, 1998 and 1997, respectively. The increase in
EBITDA corresponds with the improved operating results of
the Company.
Cash provided from operations for the three months ending
March 31, 1998 increased $63.2 million or 147.3% to $106.2
million as a result of improved operating results as
compared to the same period in the prior year. Changes in
working capital include an increase in accounts receivable,
accounts payable and taxes accrued and other liabilities,
partially offset by a decrease in deferred income taxes.
The increases in accounts receivable, accounts payable, and
taxes accrued and other liabilities are the result of
improved operating results. The decrease in deferred income
taxes is largely attributable to the effect of nonrecurring
charges recorded in 1997.
Cash used for investing activities increased $41.5 million
or 95.2%. This increase is being driven by an increase in
capital expenditures during the first three months of 1998
of $6.9 million or 8.9%. The increase in capital
expenditures is principally due to the SONET based fiber
optic network build. Cash utilized for capital expenditures
of $77.4 million for the three months ended March 31, 1997
was partially funded by the proceeds received from the sale
of the Company's equity interest in the South Alabama
Cellular Communications partnership which closed in the
first quarter of 1997.
Cash provided from financing activities increased $9.2
million during the first three months of 1998 as compared to
the same period in 1997. This net inflow of cash is the
result of increased commercial paper borrowings during the
period which were driven by the Company's capital program as
well as a refinancing of GlobalCenter debt subsequent to the
pooling of interests transaction.
Debt
The Company's total debt amounted to $992.0 million at
March 31, 1998, an increase of $47.4 million from December
31, 1997. This higher debt level is largely driven by the
Company's capital program, including the SONET based fiber
optic network build.
Debt Ratio and Interest Coverage
The Company's debt ratio (total debt as a percent of total
capitalization) was 50.3% at March 31, 1998, as compared
with 49.2% at December 31, 1997. Pre-tax interest coverage,
excluding nonrecurring charges, was 4.6 times for the three
months ended March 31, 1998, as compared with 5.4 times for
the same period in 1997.
Capital Spending
Through March 1998, gross capital expenditures amounted to
approximately $85.5 million, as compared to $79.6 million in
the prior year. The Company currently projects its capital
expenditures to be in the range of $525.0 million in 1998.
Through March 1998, cumulative capital expenditures relating
to the SONET network totaled $294.7 million. The Company
anticipates financing its capital program through a
combination of internally generated cash from operations and
external financing.
Dividends
On March 23, 1998, the Board of Directors declared the
first quarter 1998 dividend of 22.25 cents per share on the
Company's common stock, payable May 1, 1998 to shareholders
of record on April 15, 1998.
New Accounting Pronouncements
The Company will adopt the provisions of Financial
Accounting Standards Board 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. 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 will adopt the provisions of SOP 98-5 in the second
quarter of 1998. Adoption of this statement will not have a
material effect on the Company's consolidated 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 95% 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. The Company is allowed to raise prices on certain
enhanced products such as caller ID and call forwarding.
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, Frontier Telephone of Rochester,
Inc. ("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.
The temporary restriction of dividend payments to Frontier
will remain in place until the NYSPSC is satisfied that FTR's
1997 service levels demonstrate that FTR has rectified the
service deficiency. The NYSPSC is currently examining
service level data for the period 1993-1997 and may reopen
the calculation of service levels for one or more of these
years. Frontier has had continuing discussions with the
NYSPSC and a decision resolving outstanding issues is now
expected in midyear. Based on the level of customer
complaints to the NYSPSC in 1996 and 1997, FTR will be
required to refund approximately $150,000 in 1998. Reserves
sufficient to cover this refund were established in 1997.
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
Inc. or FNS). The plaintiffs seek environmental "response
costs" in the approximate amount of $1.5 million 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 FNS, the current defendants are:
Agway, Inc.; BMC Industries, Inc.; Borg-Warner Corporation;
Elf Atochem North America, Inc.; Mack Trucks, Inc.; Motor
Transportation Services, Inc.; Pall Trinity Micro
Corporation; The Raymond Corporation; Redding-Hunter, Inc.;
Smith Corona Corporation; Sola Basic Industries, Inc.;
Wilson Sporting Goods Company; 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. Total cost estimates for those
alternatives range from $.5 million to $20 million. The
alternative preferred by the EPA has an estimated cost of $3
million. The Company is presently evaluating the PRAP and
will be consulting with the other defendants about a joint
response to plaintiffs. There has been no allocation of
liability as among or between the plaintiffs or defendants.
The extent to which plaintiffs can recover any of these
costs from the defendants, including FNS, will be determined
at trial or through negotiation among the parties.
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 is pending in federal court in
Minnesota. The federal lawsuit asserts RICO claims in
addition to state common law and statutory violations. 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 suits that have not settled, 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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareowners was held on April 29,
1998 for the purpose of electing a board of directors and
approving the ratification of auditors.
All of management's nominees for directors as listed in
the proxy statement were elected with the following vote:
Numbers of Shares/Votes
Name For Authority Withheld
-----------------------------------------------------------
Patricia C. Barron 148,482,206 956,145
Joseph P. Clayton 148,537,892 900,459
Raul E. Cesan 148,516,283 922,068
Brenda E. Edgerton 148,514,544 923,807
Jairo A. Estrada 148,526,097 912,254
Michael E. Faherty 148,538,292 900,059
Alan C. Hasselwander 147,614,843 1,823,508
Robert Holland, Jr. 148,473,370 964,981
Douglas H. McCorkindale 148,486,736 951,615
Dr. Leo J. Thomas 148,526,707 911,644
The ratification of Price Waterhouse LLP as Public
Accountant for the fiscal year 1998 was approved with the
following vote:
For 148,676,756
Against 248,999
Abstain 482,594
Broker non-votes 1
Item 5. Other Information
On October 9, 1997, the 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. The Company cannot predict the outcome of future
proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index
(b) Reports on Form 8-K: The Company filed the
following reports during the quarter ended
March 31, 1998.
SEC Filing Date Item No. Financial Statements
----------------------------------------------------------
January 30, 1998 5 None
March 2, 1998 5 None
The Company filed no reports subsequent to the quarter
ended March 31, 1998.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
FRONTIER CORPORATION
------------------------------------
(Registrant)
Dated: May 14, 1998 /s/James G. Dole
By: --------------------------------
James G. Dole
Senior Vice President and
Controller
(principal accounting officer)
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
3.1 Restated Certificate of Incorporation Incorporated by
reference to Exhibit
3.1 to Form 10-K for
the year ended
December 31, 1995.
3.2 Amendment to Restated Certificate of Incorporated by
Incorporation reference to Exhibit
3.2 to Form 10-K for
the year ended
December 31, 1995.
3.3 Bylaws Filed herewith
4.1 Indenture, dated as of May 21, 1997, Incorporated by
between the Registrant and Chase reference to Exhibit
Manhattan Bank, as Trustee 4.1 to Form 8-K, filed
May 23, 1997
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)
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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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 ten 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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
3/21/83
<PAGE>
(10)
transaction of business of a committee shall consist of (a) a
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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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)
In thousands of dollars, except per share data
Three Months Ended March 31, 1998 1997
- --------------------------------------------------------------------------
Income (loss) applicable to common stock $ 33,663 $(16,156)
Interest expense on convertible debentures, net of
tax (1) 90 -
- ---------------------------------------------------------------------------
Adjusted income (loss) applicable to common stock $ 33,753 $(16,156)
- ---------------------------------------------------------------------------
Average Common Shares Outstanding 170,071 167,006
Stock options and warrants (1) 2,230 -
Convertible debentures (1) 503 -
- ---------------------------------------------------------------------------
Adjusted common shares assuming conversion
at beginning of each period 172,804 167,006
- ---------------------------------------------------------------------------
Diluted Earnings Per Common Share $ .20 $ (.10)
===========================================================================
(1) Convertible debentures and common stock equivalents are
not applicable to the calculation for 1997 due to the
Company's net loss position.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FRONTIER CORPORATION'S FINANCIAL STATEMENTS FOR THE THREE MONTHS PERIOD
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<CIK> 0000084567
<NAME> FRONTIER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 59,302
<SECURITIES> 0
<RECEIVABLES> 444,275
<ALLOWANCES> 32,334
<INVENTORY> 13,794
<CURRENT-ASSETS> 547,883
<PP&E> 2,553,593
<DEPRECIATION> 1,426,768
<TOTAL-ASSETS> 2,597,238
<CURRENT-LIABILITIES> 531,369
<BONDS> 985,524
0
20,126
<COMMON> 170,900
<OTHER-SE> 781,256
<TOTAL-LIABILITY-AND-EQUITY> 2,597,238
<SALES> 0
<TOTAL-REVENUES> 631,998
<CGS> 19,994
<TOTAL-COSTS> 563,984
<OTHER-EXPENSES> (892)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,431
<INCOME-PRETAX> 59,131
<INCOME-TAX> 25,217
<INCOME-CONTINUING> 33,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,914
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
