<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number 33-91250
------------
FRONTIER TELEPHONE OF ROCHESTER, INC.
(Exact name of Registrant as specified in its charter)
(previously Rochester Telephone Corp.)
------------
New York 16-1469713
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 South Clinton Avenue 14646-0700
Rochester, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (716) 777-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO __
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 1, 1999 all 772 outstanding shares of the registrant's
no par common stock were held by Frontier Corporation.
OMISSION OF INFORMATION BY CERTAIN WHOLLY-OWNED SUBSIDIARIES
The registrant meets the conditions set forth in General
Instruction I(1)(a) and (b) of Form 10-K and is therefore
filing this Form with the reduced disclosure format.
<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS
The Company
Frontier Telephone of Rochester, Inc. ("FTR" or the
"Company") (formerly Rochester Telephone Corp.) is a
regulated independent telephone company that serves
customers in the Rochester, New York market. The Company is
the primary provider of basic telephone services in the
Rochester market and offers its customers a full complement
of local telephone network services, access to long distance
network services, directory and other operator services.
The Company also offers all of its network services for sale
on a wholesale basis to other telecommunication service
providers in the Rochester market.
The Company was incorporated under the laws of the
State of New York in November 1994 and is a wholly-owned
subsidiary of Frontier Corporation ("Frontier"). Frontier
has served the Rochester market since 1920 and has evolved
into a diversified national telecommunications firm. The
Company's operations represented approximately 13% of
Frontier's consolidated revenues for the year ended December
31, 1998 and 17% of Frontier's consolidated assets as of
December 31, 1998.
General
The Company derives revenue primarily from charges for
local services, network access for interconnection of long
distance companies, directory advertising and billing and
collection and other services provided to long distance
companies. The Company also derives revenue from the sale,
leasing and maintenance of telephone equipment and the sale
of enhanced services such as voice mail, custom calling
features, Internet and advanced number identification
products such as Caller ID. In addition, the Company offers
its network services on a tariff basis for wholesale
purchase by other telecommunication service providers,
including Frontier Communications of Rochester, Inc., a
subsidiary of Frontier. The Company's expenses are
primarily related to the development and maintenance of its
local exchange network and costs associated with customer
service, billing and other general and administrative
functions.
The Company operates 71 central office and remote
switching centers in and around Rochester, New York. As of
December 31, 1998, the Company served 551,475 access lines
in the Rochester market, of which 361,073 were residential
lines and 190,402 were business lines.
Over the last decade, the Company has invested heavily
in upgrades to its local exchange business in the Rochester
market. Over this period, the Company's switching networks
have been fully digitalized, making Rochester one of the
largest cities in the United States to be served by an all-
digital network.
Technological innovation and regulatory change are
accelerating the pace of competition for local exchange
services. New competitors now have the ability to provide
basic local telephone service in many major U.S. markets,
including Rochester, New York. To benefit from these
technological advances and broaden the scope and quality of
its own product and service offerings, the Company has
increased digital switching capacity throughout its network
and has pursued regulatory alternatives such as the Open
Market Plan, which is described in more detail on pages 5-6.
Currently, the Company continues to be the primary retail
provider of basic residential local telephone service in
Rochester, New York.
Merger Agreement with Global Crossing
On March 17, 1999, Frontier announced a definitive
merger agreement to be acquired by Global Crossing Ltd.
("Global Crossing"), the owner and operator of the world's
first independent global fiber-optic network. The
transaction is currently valued at $11.2 billion based on
the March 16, 1999 closing price of Global Crossing shares.
The combination of the two companies will create a global
Internet Protocol-based fiber-optic network able to provide
customers with integrated worldwide Internet, data, long
distance, local telephone and conferencing services. Based
on already announced networks, the combination will have
71,000 route miles, over 1 million fiber miles, and offer
ultra-high bandwidth to 159 cities in 20 countries. It will
offer global voice, web hosting, private line, ATM and
Internet services.
Under the terms of the transaction, which has been
unanimously approved by the Boards of Directors of both
companies, Frontier shareholders will receive Global
Crossing common shares valued at $62 per Frontier share, as
long as Global Crossing shares trade within a range of
$34.56 to $56.78 per share (the "collar") during a price
period prior to closing. Outside the collar, Frontier
shareholders will receive a fixed number of Global Crossing
shares, 1.0919 shares at the top end of the collar and
1.7939 at the bottom of the collar. In connection with the
transaction, Frontier has granted Global Crossing an option
to acquire up to 19.9% of its outstanding shares at $62 per
share as well as a break-up fee if the merger is terminated
for certain reasons.
Based on market prices as of March 16, 1999, the merged
company will be approximately two-thirds owned by current
Global Crossing shareholders and one-third owned by current
Frontier shareholders. The transaction is expected to
qualify as a tax-free reorganization to the Frontier
shareholders and is anticipated to be accounted for as a
purchase. This transaction is subject to approval by
shareholders of both companies, the Federal Communications
Commission, state and other regulatory authorities. It is
expected that the transaction will be completed in the third
quarter of 1999.
Telecommunications Law
The Telecommunications Act of 1996 ("Telecommunications Act"
or the "Act") was enacted on February 8, 1996. This
landmark legislation significantly modified the
Communications Act of 1934. The Act has particular
relevance to the Company in two areas. First, the Act
creates a duty on the part of the Company to interconnect
its network with those of its competitors and, in
particular, to negotiate in good faith the terms and
conditions of such interconnection. The Act also
establishes pricing rules for services sold by the Company
to its competitors. The Telecommunications Act incorporated
many aspects of the Open Market Plan initiated by the
Company in 1993 and implemented in 1995. The Company
believes its experience with the Rochester, New York Open
Market Plan provides it with a competitive advantage.
Second, although the Act generally prohibits long
distance companies from marketing their services jointly
with the local telephone services provided by a Regional
Bell Operating Company ("RBOC"), at least until that RBOC is
permitted to enter the long distance business, it contains
an exception for companies that serve less than two percent
of the nation's presubscribed access lines, such as the
Company. The Company is not a RBOC. Thus, the Act permits
the Company to market its local telephone services jointly
with long distance services whether provided by the Company
or provided by an affiliated company.
On August 8, 1996, the Federal Communications
Commission ("FCC") released a First Report and Order (the
"First Report and Order") in a core rulemaking proceeding to
implement the Telecommunications Act. The First Report and
Order established guidelines to promote local competition,
affecting the Company and all other competitors in local
telecommunications markets. On July 18, 1997, the U.S.
Circuit Court of Appeals for the Eighth Circuit reversed
portions of the First Report and Order that provided for
pricing based primarily on forward-looking, rather than
historical costs, and that would have provided the FCC with
substantially more authority over the compliance by local
telephone companies with provisions of the
Telecommunications Act. On January 25, 1999, the United
States Supreme Court revised, in substantial part, the
Eighth Circuit's decision. The Supreme Court affirmed the
FCC's authority to promulgate rules governing the
methodology by which pricing decisions are to be made. The
Court also found that the Eighth Circuit should not have
addressed the issue regarding the FCC's jurisdiction to
enforce compliance with the Act because this issue was not
ripe for review. Finally, the Court held that the FCC had
not followed the statutory test for determining which
network elements incumbent local exchange carriers were
required to unbundle and ordered the matter sent back to the
FCC for further consideration. Action at the FCC is
pending.
The Act also requires the FCC to restructure the manner
in which universal service support payments are established
and distributed. On May 7, 1997, the FCC substantially
adopted the recommendation of a Federal-State Joint Board
released on November 8, 1996 with respect to universal
service. The FCC's order increased the amount of financial
support to be dedicated to universal service programs. The
FCC has released numerous subsequent orders that have
modified its original decisions. Further action is
anticipated in this area.
On May 16, 1997, the FCC adopted an order that
substantially modified the structure by which local exchange
carriers are compensated for access to and use of their
networks. This order was implemented effective January 1,
1998. In general, this order encouraged the recovery of
some costs that had previously been recovered through usage-
based charges to be recovered through fixed charges. The
FCC has postponed implementation of portions of the order
and additional change is considered likely.
On October 9, 1997, the FCC ordered carriers that
receive "dial around" calls from payphones (certain calls
sent without coins, such as 800 or other calls, with special
access codes) to compensate payphone owners at the rate of
28.4 cents per completed call. The Court of Appeals for the
District of Columbia Circuit found that the FCC had failed
to justify this rate and sent the matter back to the FCC for
further consideration. On February 4, 1999, the FCC set the
"dial around" compensation rate at 24 cents per completed
call retroactive to October 7, 1997. This decision is
subject to reconsideration and appeal.
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 is
considering whether to pursue challenges to the FCC order
with other carriers in light of the FCC's February 4, 1999
order. The Company cannot predict the outcome of future
proceedings.
The Open Market Plan
The Company began its fifth year of operations under
the Open Market Plan in January 1999. 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.
Results since implementation of the Open Market Plan are
considered to have been constructive for the Company as a
whole.
During the seven year period of the Open Market Plan,
the Company will not be regulated by rate-of-return
regulation, but instead, will be regulated under pure price
cap regulation. Over this period, planned rate reductions of
$21.0 million (the "Rate Stabilization Plan") will be
implemented for Rochester area consumers, including $16.5
million of which occurred through 1998, and an additional
$1.5 million which commenced in January 1999. 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.
During the second quarter of 1997 the FCC issued
decisions that are intended to implement provisions of the
Telecommunications Act. Of significance were decisions that
outlined changes in the structure of universal service
support and in the framework that applies to certain
interstate rates that are generally characterized as access-
related charges. During the second and third quarters of
1997, a Federal appeals court issued a series of decisions
reversing parts of an earlier FCC order that set out
conditions governing the provision of interconnection
services. These orders were appealed further and the U.S.
Supreme Court on January 25, 1999 reinstated several
portions of the FCC's order. The Company has not completed
its analysis of the impact of the Supreme Court's decision.
Under the Telecommunications Act and a statewide
proceeding, the New York State Public Service Commission
("NYSPSC") is considering the prices that local exchange
companies in New York may charge for "unbundled" service
elements such as links (the wire from the switch to the
customer premise), ports (the portion of the switch that
terminates the link) and switch usage features. The Company
is actively participating in this proceeding and expects the
NYSPSC to issue one or more decisions on service elements in
1999. The NYSPSC has issued a Notice Inviting Comments in
which it has proposed to make further changes in pricing
under the Open Market Plan. These pricing changes could
reduce some prices to competitors for network elements and
other offerings, but could also reduce the amount paid by the
Company for reciprocal compensation. The issues being
addressed by the NYSPSC have been under consideration since
1995. The Company cannot predict the ultimate impact of any
NYSPSC action in this proceeding.
Management believes there continues to be significant
market and business opportunities, as well as uncertainties,
associated with the Company's Open Market Plan. There can
be no assurance that the changing regulatory environment
will positively impact the Company.
Dividend Policy
The Open Market Plan prohibits the payment of dividends
by the Company to Frontier if (i) the Company'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 that the Company's
directors certify that such dividends will not impair the
Company'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, the Company failed to achieve the service
quality levels required by the Open Market Plan. FTR
requested a waiver, but was denied. The NYSPSC's ruling
resulted in a restriction on the flow of cash dividends from
the Company to Frontier. On October 22, 1997, the NYSPSC
adopted an order requiring the Company to issue refunds of
approximately $0.9 million, or $2.60 per customer. Reserves
sufficient to cover the refund were established in 1996.
These refunds have been issued.
On October 15, 1998, the NYSPSC approved a proposal by
the Company for revision of its service incentive plan that:
-required a rebate of $8.00 per customer to resolve all
service penalties for 1997 and 1998, such rebates have been
issued,
-established a rebate/client program for missed appointments, and
-increased the amounts at risk for the period 1999-2001
should the Company fail to meet service levels.
In 1998, the Company completed commitments to the
NYSPSC to increase capital expenditures to a minimum of
$80.0 million and added employees in service-affecting
areas.
The temporary restriction of dividend payments to
Frontier will remain in place until the NYSPSC is satisfied
that the Company's service levels demonstrate that the
Company has rectified the service deficiency.
Employees and Labor Relations
As of December 31, 1998 the Company had 1,616
employees, of which 253 were management employees and 1,363
were clerical, service and craft workers. The Frontier
Telephone of Rochester, Inc. Workers Association ("RTWA")
represents 633 of such clerical and service workers and the
Communications Workers of America, Local 1170 ("CWA Local")
represents 730 craft and service workers. The union labor
contracts are normally negotiated in three year cycles.
Under the current three-year contract between the
Company and the RTWA, effective August 10, 1997, bargaining
unit employees will receive a 2.0% general increase on
August 15, 1999. On August 16, 1998 they received a 2.0%
general increase. On February 18, 1996 and February 16,
1997 they received a 1.0% general increase.
On January 31, 1996, the CWA Local contract expired.
The contract negotiations reached an impasse, and the
Company implemented the terms of its final offer as of April
9, 1996. Members of the CWA Local ratified a tentative
agreement with the Company on April 29, 1997 which contained
provisions that differed from the Company's final offer
implemented at the time of impasse. The differences between
the Company's final offer and the agreement that was
subsequently reached and ratified by CWA Local membership
were not material. This agreement provided several
operational improvements and resulted in a more consistent
alignment of benefits with the rest of Frontier. The CWA
Local continued to appeal one issue with the National Labor
Relations Board ("NLRB") related to the declaration of
impasse. In October 1998, the administrative law judge
found in favor of the Company. Presently, the Union and the
government are appealing to the NLRB. The Company cannot
predict the final outcome of this matter at the present
time. The CWA Local and the Company reached a new three
year agreement in December 1998 which is not scheduled to
expire until January 2002.
Year 2000 Issues
The Company's Year 2000 ("Year 2K") project is intended
to address potential processing errors in computer programs
that use two digits (rather than four) to define the
applicable year. The Company's assessment of Year 2K issues
is essentially complete. Disclosure is warranted because
the issues, if unresolved by the Company and by the many
unaffiliated carriers and other firms with whom the Company
interconnects its networks or does business, could have
impacts that are material. The Company addresses Year 2K
issues in four areas:
State of Readiness. The Company has developed plans to
assess and remediate key internally-developed computer
systems so they will be Year 2K compliant in advance of
December 31, 1999 and has implemented those plans to a
significant degree. The plans include both information
technology ("IT") and non-IT compliance. The plans cover
the review, and either modification or replacement where
necessary, of portions of the Company's computer
applications, telecommunications networks,
telecommunications equipment and building facility equipment
that directly connect the Company's business with customers,
suppliers and service providers. Implementation of the plan
began in 1996 and the Company believes that substantially
all of its internally-developed IT systems are now
compliant. Final assessments and remediation are expected
to be substantially complete by midyear 1999, leaving the
remainder of 1999 for additional system testing, carrier
interoperability testing and other remediation. These plans
involve capital expenditures for new software and hardware,
as well as costs to modify existing software. This could
include replacement of individual end user equipment.
Initially, work with IT systems was given priority over work
with non-IT systems, but the Company, in part through the
staff of Frontier, is comprehensively reviewing its non-IT
Year 2K readiness as well, including communications with
third parties who supply or maintain non-IT systems or
significant non-IT subsystems.
The Company has given special attention to the Year 2K
issues involved in its network, switches and billing
systems, and will continue to dedicate significant resources
to these areas as a priority. The Company has also
increased its resources in areas in which assessment and
remediation has not yet reached a point where management is
satisfied with progress.
Costs. To date, the Company has committed approximately
$0.8 million to Year 2K issues, and anticipates that it will
spend an additional $1.0 to $2.6 million during 1999. This
includes costs directly related to Year 2K assessment and
remediation and the replacement of non-compliant systems,
including acceleration of replacement of non-compliant
systems due to Year 2K issues. A substantial portion of the
total amount has been used for third party assistance in
assessment and remediation. Another $0.2 million may be
spent to replace end user equipment. The source of these
funds is cash generated from operations. The Year 2K
projects have not caused the Company to forego or defer, to
any material degree, other critical IT projects. To date,
the costs of addressing potential Year 2K problems are not
considered material to the Company's financial condition,
results of operations or cash flows and have been consistent
with planned expenditures, and future costs are not expected
to be material in such respects.
Risks. The Company is engaged primarily in
telecommunications lines of business and therefore connects
directly and indirectly with thousands of other carriers.
These connections are made through switching offices of the
Company and the other carriers. The switching offices were
manufactured by and often maintained by third parties.
While many other carriers have announced plans to engage
independently in Year 2K assessment and remediation for
their networks, there is a risk that some carriers will not
address or resolve Year 2K issues, and that
telecommunications will therefore be affected. If this were
to occur, it is likely that the Company would be affected
only to the same degree as the other carriers in the
telecommunications industry. A Year 2K failure in the
network of smaller carriers would not be likely to have a
significant impact on telecommunications generally, or on
the Company. However, addressing these risks is outside the
Company's control. In addition, the Company is unable at
this time to assess the degree to which the manufacturers of
switches and similar equipment have completed their
assessment and remediation of such equipment and its
associated software with respect to any other carriers. The
majority of the Company's switches are manufactured and
supported by entities with a broad base of similarly
situated customers, and who have a vested interest in
assuring that their products will not be affected by Year 2K
events, and if affected, will be remedied promptly. The
Company has initiated an inquiry with its primary vendors
and continues to engage in discussions related to Year 2K
compliance with many of them. Another risk to the Company
arises with respect to the timely completion of Year 2K
remediation for the processing that occurs in the Company's
IT and non-IT systems, including billing systems. If the
Company or its vendors are unable to resolve such processing
issues in a timely manner, it could pose independent risks
to the Company's business that could be material.
Accordingly, the Company has devoted resources it believes
to be adequate to resolve all significant identified Year 2K
issues in a timely manner, and has undertaken plans to make
information available to customers and others related to its
Year 2K activities. Consistent with the practice of other
carriers, the Company generally has declined to provide Year
2K compliance warranties or other Year 2K-related
contractual promises to customers or other persons. In
addition, the Company is engaged in communications with
third party equipment and software vendors and suppliers of
services to verify their Year 2K readiness, and plans to
engage in internetwork testing with other carriers during
1999. Since Frontier's Optronics network, including the
recently announced southeast expansion, is expected to be
substantially deployed before December 31, 1999, the Company
anticipates that the impact of other carriers who may
experience business interruptions would be lessened, and
such interruptions are not currently expected to have
material adverse impacts on the Company.
Contingency Plans. The Company consistently monitors
the progress of its Year 2K program. The Company currently
anticipates that it will resolve its Year 2K issues before
the end of 1999, with the exception of any issues that
involve other carriers or suppliers and that are outside of
its control. During 1999, the Company will also monitor
efforts undertaken through regulatory agencies (including
the NYSPSC) and industry groups to assure that Year 2K
preparations are completed in a timely manner. The Company
has begun to evaluate whether there are areas for which
contingency plans are appropriate (but has not identified
any such areas to date). Any need for contingency planning
will be identified well before year end. The Company has
experience in manual billing for its customers and will
always have manual processes available to it. Contingency
plans will be developed for critical systems if conversion
or replacement projects fall behind schedule, or if
internetwork testing should identify significant risk
issues, or if broader industry concerns emerge that
management concludes require such action.
Environmental and Other Matters
Except for site specific issues, environmental issues
tend to impact members of the telecommunications industry in
consistent ways. The Environmental Protection Agency ("EPA")
and other agencies regulate a number of chemicals and
substances that may be present in facilities used in the
provision of telecommunications service. These include
preservatives in some wood poles, asbestos in certain
underground duct systems and lead in some cable sheathing.
Some components of the Company's network may include one or
more of these substances. The Company believes that, in
their present uses, any such facilities of the Company pose
no significant environmental or health risk that derives
from EPA regulated substances. If EPA regulation of any
such substance is increased, or if any facilities are
disturbed or modified in such a way as to require removal,
special handling, storage and disposal may be required for
any such facilities removed from use. The Company is not
subject to any environmental litigation that requires
disclosure at this time.
Risk Factors
This Report on Form 10-K and the documents incorporated
by reference include forward-looking statements as described
under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those identified
in forward-looking statements. Forward-looking statements
are identified by such words as "expects," "anticipates,"
"believes," "intends," "plans" and variations of such words
and similar expressions.
Changes in Rates of Growth of the Economy and the Overall
Industry
To some extent, the Company's revenue growth is related
to the overall economy and to the telecommunications
industry in general. Factors that may influence the
Company's performance within the telecommunications industry
include product pricing and development, integration of
services, the effects of competition and the expansion of
the business. The performance of the economy and the
telecommunications industry could cause the Company's
actual results to vary significantly.
Competition Risk
Technological innovation and regulatory changes are
accelerating the pace of competition for telecommunications
services. As a result, the Company faces intensified
competition in all aspects of providing telecommunications
services.
There are significant uncertainties surrounding the
introduction of new products and services and the capital
expenditures that will be required by the Company to remain
in a competitive position. In addition, there are
uncertainties surrounding the impact on competition as a
result of the enactment of the Telecommunications Act.
Contingent Liabilities
The Company is often involved in various judicial and
administrative proceedings involving matters incidental to
the business. Unless otherwise stated specifically, the
Company believes that the probable outcome of any of these
matters, or the combination of all of the matters, will not
have a material adverse effect on the Company's results of
operations or financial position. However, there can be no
assurance that the resolution of these matters will not be
contrary to management's expectations.
ITEM 2. PROPERTIES
The Company owns its telephone property, which
includes: connecting lines between customers' premises and
the central office switching equipment, buildings, land and
miscellaneous property and customer premises equipment.
Central office switching equipment includes digital
electronic switches and peripheral equipment. Connecting
lines include aerial and underground cable, conduit, poles,
wires and microwave equipment. These facilities are located
on public streets and highways or on privately owned land.
The Company has permission to use these lands pursuant to
local governmental consent or lease, permit, franchise,
easement or other agreement.
The Company owns or leases the land and buildings in
which its central office, warehouse space, office and
traffic headquarters are located. The Company's
headquarters are located in a leased seven-story building at
180 South Clinton Avenue, Rochester, New York which it
shares with other Frontier affiliates. The lease expires in
December 2014.
ITEM 3. LEGAL PROCEEDINGS
AT&T Communications of New York filed a complaint with
the NYSPSC for reconsideration of the Open Market Plan on
October 3, 1995. The complaint sought a change in the
wholesale discount, a change in the minutes of use surcharge
and also changes in a number of operational and support
activities. Some of these issues are also being considered
in other states in other unrelated local competition
proceedings. On July 18, 1996, the NYSPSC increased the
wholesale discount from 5.0% to 13.5% on a temporary basis,
effective July 24, 1996. On November 27, 1996, the NYSPSC
established permanent wholesale discounts, retroactive to
July 24, 1996, of 17.0% for resellers using the Company's
operator services and 19.6% for resellers providing their
own operator services. In a statewide proceeding also
examining New York Telephone Company's and the Company's
wholesale prices, the NYSPSC is determining the prices
applicable to the purchase of unbundled network elements
such as subscriber loops, switch ports and transport and
switching services. In a related statewide proceeding, the
NYSPSC is also examining possible changes in the prices and
rate structure of intrastate access charges paid by long
distance companies for the origination and termination of
long distance calls.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company is a wholly-owned subsidiary of Frontier.
There is no established public trading market for the no par
value, common stock of the Company.
The Open Market Plan, discussed under Item 1, imposes
conditions on the declaration of dividends from the Company
to Frontier such that the Company may only pay dividends on
its common stock when the payment of such dividends will not
impair the Company's service quality or its ability to
finance its short and long-term capital needs on reasonable
terms, while maintaining specified debt ratings (a target
debt rating of "A" from S&P). Payment of dividends is also
restricted when certain service quality measures fall below
minimum levels stipulated in the Open Market Plan as
discussed in Item 1.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I.
ITEM 7. MANAGEMENT'S DISCUSSION OF RESULTS OF
OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION
The information presented in this Management's
Discussion of Results of Operations and Analysis of
Financial Condition should be read in conjunction with the
financial statements and accompanying notes of Frontier
Telephone of Rochester, Inc. ("FTR" or the "Company")
(formerly Rochester Telephone Corp.) for the three years
ended December 31, 1998.
The matters discussed throughout this Form 10-K, 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 in Rochester, New York, 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 Form 10-K should be evaluated in light of
these important risk factors.
RESULTS OF OPERATIONS
Revenues were $336.9 million in 1998, a $10.1 million,
or 3.1% increase from 1997. Revenues in 1997 increased $5.0
million or 1.5% over 1996. The Company experienced revenue
growth from increased demand for dedicated circuits,
enhanced features, expansion of the Internet customer base
and increased directory yellow page advertising. The growth
in revenue continues to be negatively impacted by the
increase in the discount to wholesale providers from 5% to
17.0%, as ordered by the NYSPSC, and the $1.5 million annual
rate reduction, effective January 1, 1997, associated with
the Open Market Plan. In addition, new interstate access
rates, which became effective July 1, 1998 and 1997, have
reduced revenues.
Costs and expenses were $242.9 million in 1998 as
compared with 1997 expenses of $233.5 million and $233.0
million (excluding pension curtailment) in 1996. This
increase is attributable to service quality improvements,
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 increase in repair and maintenance
costs was caused by severe weather conditions that occurred
during the first half of 1998, as well as a severe windstorm
during the third quarter of 1998. Costs and expenses for
1996 include a post-tax charge of $17.3 million resulting
from the curtailment of certain company pension plans. The
pension curtailment is a result of Frontier's efforts to
standardize pension benefits across the Corporation.
Reduced selling, administrative and depreciation costs in
1996 were offset by increased costs associated with the
union contract negotiations. These costs, which were
incurred in connection with the contract negotiations with
CWA Local, were necessary to ensure reliable and
uninterrupted customer service in the event of a work
stoppage or shutdown.
Depreciation and amortization expense for 1998
increased $1.6 million or 2.8% from 1997. Depreciation and
amortization expense increased $0.7 million or 1.3% from
1996 to 1997. The increases are primarily due to capital
additions to telephone plant and equipment in service during
1998 and 1997.
Other Income Statement Items
Interest Expense
Interest expense was $1.7 million in 1998, a decrease
of $0.6 million or 26.8% over 1997. Interest expense of
$2.3 million in 1997 decreased $0.8 million or 24.6% over
1996. Reductions in interest expense in 1998 and 1997 as
compared to 1996 are the result of lower average outstanding
debt levels as well as lower interest rates.
FINANCIAL CONDITION
Review of Cash Flow Activity
Cash provided from operating activities amounted to
$135.6 million in 1998 as compared to $94.7 million in 1997
and $106.4 million in 1996. The increase is the result of
improved operating results.
Cash used for investing activities was $84.4 million,
$57.8 million and $53.1 million in 1998, 1997 and 1996,
respectively. The increase in capital expenditures in 1998
compared to 1997 is primarily due to technological
expenditures driven by technological advancements, expansion
of the network to meet customer demand and service quality
improvements. The increase in capital expenditures in 1997
compared to 1996 is primarily due to outside plant facility
upgrades.
Financing activities resulted in net cash outflows of
$0.5 million, $38.1 million and $55.4 million for 1998, 1997
and 1996, respectively. During 1998, the Company repaid
advances to affiliates of $0.5 million. During 1997, the
Company repaid commercial paper borrowings of $22.9 million
and advances to affiliates of $15.2 million. In 1996, the
Company paid cash dividends of $23.5 million, returned
capital to Frontier of $32.5 million, repaid advances to
Frontier in the amount of $1.9 million and increased
borrowings under its commercial paper program by $2.6
million. No cash dividends were paid to Frontier during
1998 or 1997.
Liquidity and Capital Resources
At December 31, 1998, the Company's total outstanding
long-term debt amounted to $40.0 million of medium-term
notes. The notes were issued March 27, 1995 and mature in
2002. During November 1998, the Company cancelled its $50.0
million credit facility which was due to expire during
December 1999.
On March 31, 1997, S&P announced their new domestic
telephone company rating methodology, which addresses the
impact of deregulation on operating and holding company
ratings. As a result, the ratings of 16 companies were
affected by S&P's announcement, and S&P lowered their rating
of the Company's long-term debt from "AA" to "AA-". Under
S&P's revised rating methodology, a local telephone company
is typically allowed a rating one "notch" higher than that
of the consolidated entity (i.e., holding company and
operating subsidiaries). However, the Company was allowed a
two "notch" differential, largely as a result of the
regulatory controls in existence under the Company's Open
Market Plan.
Debt Ratio and Interest Coverage
The Company's debt to total capital ratio at December
31, 1998 decreased to 10.2%, as compared to 12.1% in the
prior year and 21.4% in 1996. The change in the debt ratio
in 1998 and 1997 as compared to 1996 is primarily driven by
the reduction in total debt outstanding as the Company paid
off commercial paper borrowings with excess cash. Pre-tax
interest coverage, which measures the Company's ability to
cover its financing costs, was 30.4 times in 1998 versus
24.7 times in 1997 and 20.1 times in 1996 (excluding
nonrecurring charges for all years).
Capital Spending
Total gross expenditures for property, plant and
equipment in 1999 are anticipated to be $15 million to $20
million higher than in 1998. These expenditures are
primarily attributable to technological advancements,
expansion of the network to meet customer demand and service
quality improvements. The Company anticipates financing its
capital program through internally generated cash from
operations.
OTHER ITEMS
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB")
issued FAS 130, "Reporting Comprehensive Income," effective
for fiscal years beginning after December 15, 1997. This
statement establishes standards for reporting and displaying
of comprehensive income and its components in a full-set of
general-purpose financial statements. The Company adopted
FAS 130 in the first quarter of 1998. There were no items
of comprehensive income during the year ended December 31,
1998; therefore, net income is equivalent to total
comprehensive income.
The Company has adopted 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 did not impact the
Company's financial position, results of operations or cash
flows.
The FASB issued FAS 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal
years beginning after June 15, 1999. This statement
standardizes the accounting for derivatives and hedging
activities and requires that all derivatives be recognized
in the statement of financial position as either assets or
liabilities at fair value. Changes in the fair value of
derivatives that do not meet the hedge accounting criteria
are to be reported in earnings. Adoption of this standard
is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1998, the Company does not have any
significant concentration of business transacted with a
particular customer, supplier or lender that could, if
suddenly eliminated, severely impact its operations.
The Company is also exposed to market risk from changes
in interest rates on long-term debt obligations that impact
the fair value of these obligations. The Company's policy
is to manage interest rates through the use of a combination
of fixed and variable rate debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon
of PricewaterhouseCoopers LLP, dated January 25, 1999, are
presented on pages 17 through 34 of this Form 10-K report and
is incorporated by reference into this Item 8.
<PAGE>
<PAGE>
Report of Independent Accountants
To the Shareholder of
Frontier Telephone of Rochester, Inc.
In our opinion, the accompanying balance sheets and the
related statements of income, shareholder's equity and cash
flows present fairly, in all material respects, the
financial position of Frontier Telephone of Rochester, Inc.
(formerly Rochester Telephone Corp.) at
December 31, 1998, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance
with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 9 to the financial statements,
during the first quarter of 1996 the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of."
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Rochester, New York
January 25, 1999
<PAGE>
<PAGE>
<TABLE>
Frontier Telephone of Rochester, Inc.
Business Segment Information
<CAPTION>
In thousands of dollars
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Local Services:
Revenue $300,646 $292,417 $287,785
Costs and Expenses 170,917 164,526 182,444
Depreciation and Amortization 56,545 54,984 54,291
- ---------------------------------------------------------------------
Operating Income $ 73,184 $ 72,907 $ 51,050
Total Assets $488,537 $410,153 $397,697
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Directory Services:
Revenue $ 36,256 $ 34,377 $ 34,053
Costs and Expenses 15,471 14,020 13,585
- ---------------------------------------------------------------------
Operating Income $ 20,785 $ 20,357 $ 20,468
Total Assets $ 16,261 $ 20,332 $ 18,219
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Consolidated
Revenue $336,902 $326,794 $321,838
Costs and Expenses 186,388 178,546 196,029
Depreciation and Amortization 56,545 54,984 54,291
- ---------------------------------------------------------------------
Operating Income $ 93,969 $ 93,264 $ 71,518
Total Assets $504,798 $430,485 $415,916
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Frontier Telephone of Rochester, Inc.
Statements of Income
<CAPTION>
In thousands of dollars
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $336,902 $326,794 $321,838
- ---------------------------------------------------------------------
Costs and Expenses
Operating expenses 163,094 155,718 157,197
Depreciation and amortization 56,545 54,984 54,291
Taxes other than income taxes 23,294 22,828 21,492
Pension curtailment - - 17,340
- ---------------------------------------------------------------------
Total Costs and Expenses 242,933 233,530 250,320
- ---------------------------------------------------------------------
Operating Income 93,969 93,264 71,518
Interest expense 1,713 2,341 3,105
Other income (expense), net 1,097 (640) (2,304)
- ---------------------------------------------------------------------
Income Before Taxes and Cumulative Effect of
Changes in Accounting Principles 93,353 90,283 66,109
Income taxes 32,630 31,610 23,169
- ---------------------------------------------------------------------
Income Before Cumulative Effect of
Changes in Accounting Principles 60,723 58,673 42,940
Cumulative effect of changes in
accounting principles - - (6,949)
- ---------------------------------------------------------------------
Net Income $ 60,723 $ 58,673 $ 35,991
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Frontier Telephone of Rochester, Inc.
Balance Sheets
<CAPTION>
In thousands of dollars
December 31, 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 53,103 $ 2,406 $ 3,591
Accounts receivable (less allowance
for uncollectibles
of $5,082, $2,646 and $1,501,
respectively) 37,779 45,673 47,777
Accounts receivable - affiliates 3,200 4,382 2,670
Advances to affiliates 11,933 11,421 -
Materials and supplies 336 710 2,006
Prepaid directory 14,200 13,934 12,463
Other prepayments 2,014 1,425 1,406
- ---------------------------------------------------------------------
Total Current Assets 122,565 79,951 69,913
Property, plant and equipment, net 360,648 333,406 330,552
Prepaid pension 20,619 16,419 14,204
Deferred and other assets 966 709 1,247
- ---------------------------------------------------------------------
Total Assets $504,798 $430,485 $415,916
- ---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 36,457 $ 29,904 $ 31,759
Accounts payable - affiliates 8,534 6,820 19,022
Advances from affiliate - - 3,827
Advance billings 4,648 4,707 4,994
Accrued taxes 5,466 2,439 3,047
Other liabilities 7,003 6,585 5,908
- ---------------------------------------------------------------------
Total Current Liabilities 62,108 50,455 68,557
Long-term debt 40,000 40,000 62,872
Deferred income taxes 19,124 21,448 25,266
Accrued postretirement benefit
obligation 29,287 25,327 23,176
Other long-term liabilities 2,718 2,417 4,971
- ---------------------------------------------------------------------
Total Liabilities 153,237 139,647 184,842
- ---------------------------------------------------------------------
Shareholder's Equity
Common stock, no par, authorized 1,000 shares;
772 shares in 1998, 1997 and 1996
issued and additional
paid in capital 232,165 232,165 231,074
Retained earnings 119,396 58,673 -
- ---------------------------------------------------------------------
Total Shareholder's Equity 351,561 290,838 231,074
- ---------------------------------------------------------------------
Total Liabilities and
Shareholder's Equity $504,798 $430,485 $415,916
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Frontier Telephone of Rochester, Inc.
Statements of Shareholder's Equity
<CAPTION>
Common Stock Retained
and Additional Earnings
In thousands of dollars Paid in Capital (Deficit) Total
-----------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1996 $263,537 $ (12,454) $251,083
Net income - 35,991 35,991
Common stock dividends - (23,537) (23,537)
Return of capital to Frontier
Corporation (32,463) - (32,463)
------------------------------------------------------------
Balance, December 31, 1996 231,074 - 231,074
Net income - 58,673 58,673
Equity adjustment on assets
transferred 1/95 1,091 - 1,091
-----------------------------------------------------------
Balance, December 31, 1997 232,165 58,673 290,838
Net income - 60,723 60,723
-----------------------------------------------------------
Balance, December 31, 1998 $232,165 $119,396 $351,561
===========================================================
See accompanying Notes to Financial Statements.
</table
<PAGE>
<PAGE>
</TABLE>
<TABLE>
Frontier Telephone of Rochester, Inc.
Statements of Cash Flows
<CAPTION>
In thousands of dollars
Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Income $ 60,723 $ 58,673 $ 35,991
- -----------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of changes in
accounting principles - - 10,691
Pension curtailment - - 17,340
Depreciation and amortization 56,545 54,984 54,291
Changes in operating assets and liabilities:
Decrease in accounts receivable 7,894 2,104 6,673
Decrease (increase) in accounts
receivable - affiliates 1,182 (1,712) (397)
Decrease in materials and supplies 374 1,296 1,078
(Increase) decrease in
prepaid directory (266) (1,471) 575
(Increase) decrease in
other prepayments (589) (19) 346
Increase in prepaid pension (4,200) (2,215) (1,240)
Decrease in deferred and
other assets 381 470 325
Increase (decrease) in
accounts payable 6,553 (1,855) (12,294)
Increase (decrease) in
accounts payable - affiliates 1,714 (12,202) 7,557
Decrease in advance billings (59) (287) (126)
Increase (decrease) in
accrued taxes 3,027 (608) (2,555)
Increase in other liabilities 418 677 388
Decrease in deferred income taxes (2,324) (2,727) (10,930)
Increase in accrued postretirement
benefit obligation 3,960 2,151 2,923
Increase (decrease) in other
long-term liabilities 301 (2,554) (4,267)
- ------------------------------------------------------------------------
Total adjustments 74,911 36,032 70,378
- ------------------------------------------------------------------------
Net cash provided by operating activities 135,634 94,705 106,369
========================================================================
Investing Activities
Expenditures for property, plant
and equipment, net (84,425) (57,770) (53,067)
- ------------------------------------------------------------------------
Net cash used in investing activities (84,425) (57,770) (53,067)
- ------------------------------------------------------------------------
Financing Activities
Repayments of debt - (22,872) -
Proceeds from issuance of long-term debt - - 2,572
Advances to affiliates (512) (15,248) (1,926)
Dividends paid - - (23,537)
Return of capital to Frontier Corporation - - (32,463)
- ------------------------------------------------------------------------
Net cash used in financing activities (512) (38,120) (55,354)
- ------------------------------------------------------------------------
Net Increase (Decrease) in Cash &
Cash Equivalents 50,697 (1,185) (2,052)
Cash and Cash Equivalents at
Beginning of Year 2,406 3,591 5,643
- ------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 53,103 $ 2,406 $ 3,591
========================================================================
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
Note 1: Accounting Policies
Basis of Accounting
The accounting policies of Frontier Telephone of
Rochester, Inc. ("FTR" or the "Company") (formerly Rochester
Telephone Corp.), a wholly-owned subsidiary of Frontier
Corporation ("Frontier"), are in conformity with generally
accepted accounting principles. 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 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.
Allocation of Corporate Overhead
The results of operations of the Company include
allocations of corporate expenses from Frontier. These
costs primarily include executive and board of directors'
expenses, corporate finance and treasury, investor
relations, corporate planning, legal services, business
development and data processing services and support. They
are allocated to the Company based on a weighted average of
four factors: employees, revenues, capitalization and common
equity. The methodology used to allocate these common
corporate costs is considered reasonable and has been
approved for use by the New York State Public Service
Commission ("NYSPSC") prior to the separation of the
companies under the Open Market Plan agreement (see Note
11).
Materials and Supplies
Materials and supplies are stated at the lower of cost
or market, based on weighted average unit cost.
Property, Plant and Equipment
The investment in property, plant and equipment is
recorded at cost. Improvements that significantly add to
productive capacity or extend useful life are capitalized,
while maintenance and repairs are expensed as incurred. The
Company's provision for depreciation of property, plant and
equipment is based on the composite group method using
estimated service lives for the various classes of plant.
The cost of depreciable property units retired, plus
removal costs, less salvage is charged to accumulated
depreciation. When non-telephone property, plant and
equipment is retired or sold, the resulting gain or loss is
recognized currently as an element of other income.
Fair Value of Financial Instruments
Cash and cash equivalents are valued at their carrying
amounts, which are reasonable estimates of fair value. The
fair value of long-term debt is estimated using rates
currently available to the Company for debt with similar
terms and maturities. The fair value of all other financial
instruments approximates cost as stated.
Federal Income Taxes
The Company is included in the consolidated federal
income tax return of Frontier. The Company pays Frontier
for the federal income tax liability resulting from the
filing by Frontier of a consolidated U.S. federal income tax
return, determined on a separate entity basis. Deferred
income tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when those
differences are expected to reverse.
Common Stock and Additional Paid in Capital
In the first quarter of 1997, a $1.1 million adjustment
to this valuation was required relating to deferred taxes
associated with the assets transferred. This adjustment is
reflected as an increase to common stock and additional paid
in capital and a decrease to deferred taxes.
Revenue Recognition
Customers are billed as of monthly cycle dates.
Revenue is recognized as service is provided net of an
estimate for uncollectible accounts. Unbilled usage is
accrued.
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 $3.1 million in 1998, $3.8
million in 1997 and $4.3 million in 1996. Actual income
taxes paid were $32.8 million in 1998, $34.7 million in 1997
and $31.3 million in 1996. Interest costs associated with
the construction of capital assets are capitalized. Total
amounts capitalized during 1998, 1997 and 1996 were $1.4
million, $1.4 million and $1.2 million, respectively.
Note 2: Property, Plant and Equipment
Major classes of property, plant and equipment are
summarized below:
<TABLE>
<CAPTION>
Estimated
Service
In thousands of dollars Life
At December 31, 1998 1997 1996 (Years)
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land and buildings $47,430 $47,316 $ 47,128 5-35
Local and fiber service lines 465,097 448,505 438,989 12-25
Central office equipment 381,278 340,435 322,943 8-13.5
Station equipment 12,132 11,673 13,357 10-21
Office equipment and other 39,260 35,302 49,192 12-20
Plant under construction 52,965 47,248 25,068
Less: Accumulated
Depreciation 637,514 597,073 566,125
- -------------------------------------------------------------------
$360,648 $333,406 $330,552
===================================================================
</TABLE>
Depreciation expense was $57.2 million, $54.9 million
and $54.1 million for the years ending December 31, 1998,
1997 and 1996, respectively.
Note 3: Long-Term Debt
<TABLE>
<CAPTION>
In thousands of dollars
At December 31, 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Medium-term notes, 7.51%, due 2002 $40,000 (a) $40,000 $40,000
Revolving credit agreements - (b) - 22,876
- --------------------------------------------------------------------
Sub-total 40,000 (c) 40,000 62,876
Less - Discount on long-term debt,
net of premium - - 4
- --------------------------------------------------------------------
Total Long-Term Debt $40,000 $40,000 $62,872
====================================================================
</TABLE>
(a) In accordance with the Open Market Plan agreement, the Company
issued $40.0 million medium-term notes in March 1995 which mature
in 2002.
(b) The Company entered into a Revolving Credit Agreement
with six commercial banks in December 1994. The
Agreement was amended in 1997 to reduce the available
line of credit from $100.0 million to $50.0 million.
During November 1998, the Company cancelled the Revolving
Credit Agreement.
(c) In accordance with FAS 107, "Disclosures about Fair Value of Financial
Instruments," the Company estimates that the fair value
of the debt, based on rates currently available to the Company
for debt with similar terms and remaining
maturities, is $42.3 million, as compared to the
carrying value of $40.0 million.
Note 4: Income Taxes
The provision for income taxes consists of the
following for the years ended December 31:
<TABLE>
<CAPTION>
In thousands of dollars 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $34,954 $34,331 $30,357
Deferred (2,324) (2,721) (7,188)
- ------------------------------------------------------------
$32,630 $31,610 $23,169
============================================================
</TABLE>
The Company is taxed under Article 9 of the New York
State Tax Law on the basis of gross receipts, not net
taxable income. Therefore, there is no current state tax
provision for income taxes.
The reconciliation of the federal statutory income tax
rate with the effective income tax rate reflected in the
financial statements is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
In thousands of dollars 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense at
statutory rate 35.0% 35.0% 35.0%
Miscellaneous - - 0.1%
- ------------------------------------------------------------
Total federal income tax 35.0% 35.0% 35.1%
============================================================
</TABLE>
Deferred tax (assets) liabilities are comprised of the
following at December 31:
<TABLE>
<CAPTION>
In thousands of dollars 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Accelerated depreciation $25,175 $26,306 $29,346
Prepaid pension 6,198 5,734 5,094
Miscellaneous 516 253 443
- -----------------------------------------------------------
Gross deferred tax liabilities 31,889 32,293 34,883
- -----------------------------------------------------------
Accrued postretirement
benefit obligation (9,730) (9,574) (8,598)
Deferred compensation (273) (297) -
Bad debt expense (1,949) (255) (527)
Miscellaneous (813) (719) (492)
- -----------------------------------------------------------
Gross deferred tax assets (12,765) (10,845) (9,617)
- -----------------------------------------------------------
Net deferred tax liabilities $19,124 $21,448 $25,266
===========================================================
</TABLE>
Note 5: Service Pensions and Benefits
The Company has contributory and noncontributory plans
providing for service pensions and certain death benefits
for substantially all employees. In 1996, defined benefit
plans sponsored by the Company were frozen. On an annual
basis, contributions are remitted to the trustees to ensure
proper funding of the plans.
The following tables summarize the funded status of the
Company's pension plan and the related amounts that are
primarily included in "Deferred and other assets" in the
Balance Sheets.
<TABLE>
<CAPTION>
In thousands of dollars 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at
beginning of year $66,804 $96,551 $ 88,098
Service cost - 842 3,226
Interest cost 3,974 4,299 5,976
Actuarial loss (gain) 4,076 11,685 (22,619)
Transfer of obligation to
Corporate (14,709) (47,310) -
Curtailments - 737 15,000
Other adjustments - - 6,870
- ----------------------------------------------------------------
Benefit obligation at end of
year $60,145 $66,804 $ 96,551
- ----------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at
beginning of year $91,463 $125,184 $102,477
Actual return on plan assets 13,234 13,589 15,837
Transfer of obligation to
Corporate (14,709) (47,310) -
Other adjustments - - 6,870
- ----------------------------------------------------------------
Fair value of plan assets at
end of year $89,988 $91,463 $125,184
- ----------------------------------------------------------------
Funded status 29,843 24,659 28,633
Unrecognized net transition
asset - (3) (607)
Unrecognized net gain (9,224) (8,237) (13,822)
- ----------------------------------------------------------------
Prepaid benefit cost, net $20,619 $16,419 $ 14,204
================================================================
</TABLE>
<TABLE>
<CAPTION>
The net periodic pension cost consists of the following
for the years ended December 31:
In thousands of dollars 1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ - $ 842 $ 3,226
Interest cost on projected
benefit obligation 3,974 4,299 5,976
Return on plan assets (7,233) (13,589) (15,837)
Net amortization and deferral (2,394) 5,496 5,395
- -------------------------------------------------------------
Net periodic pension benefit (5,653) (2,952) (1,240)
Amount expensed due to curtailment - - 17,340
- -------------------------------------------------------------
Net periodic pension (benefit)
cost $(5,653) $ (2,952) $16,100
=============================================================
</TABLE>
<TABLE>
<CAPTION>
The following rates and assumptions were used to
calculate the projected benefit obligation:
Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 6.8% 7.0% 7.5%
Rate of salary increase 5.0% 5.0% 5.0%
Expected return on plan assets 9.5% 9.5% 9.0%
- ----------------------------------------------------------
</TABLE>
The Company's funding policy is to make contributions
for pension benefits based on actuarial computations which
reflect the long-term nature of the pension plan. However,
under FAS 87, "Employers' Accounting for Pensions," the
development of the projected benefit obligation essentially
is computed for financial reporting purposes and may differ
from the actuarial determination for funding due to varying
assumptions and methods of computation. The Company changed
its assumptions used in 1998 and 1997 for the weighted
average discount rate. In 1997, the Company changed its
assumptions for the expected return on plan assets. These
changes in assumptions did not have a material effect on
1998 or 1997 pension expense.
In 1996, the Company recognized a curtailment loss of
$17.3 million reflecting the freezing of defined benefit
plans by Frontier for certain bargaining unit employees.
The Company also sponsors a number of defined
contribution plans. The most significant plan covers non-
bargaining employees, who can elect to make contributions
through payroll deduction. Effective January 1, 1996, the
Company provides a contribution of .5 percent of gross
compensation in Frontier common stock for every employee
eligible to participate in the plan. The Frontier common
stock used for matching contributions is purchased on the
open market by the plan's trustee. The Company also
provides 100% matching contributions in Frontier common
stock up to three percent of gross compensation, and may, at
the discretion of the Management Benefit Committee, provide
additional matching contributions based upon Frontier's
financial results. The total cost recognized for defined
contribution plans was $2.2 million for 1998, $1.7 million
for 1997 and $1.2 million for 1996.
Note 6: Postretirement Benefits Other Than Pensions
The Company provides health care and life insurance
benefits to most employees. Plan assets consist principally
of life insurance policies and money market instruments.
In adopting FAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," the Company
elected to defer the recognition of the transition benefit
obligation of $90 million over a period of twenty years.
During 1996, the Company amended its health care benefits
plan to cap the cost absorbed by the Company for health care
and life insurance for its bargaining unit employees who
retire after December 31, 1996. The effect of this
amendment was to reduce the December 31, 1996 accumulated
postretirement obligation by $7.8 million.
<TABLE>
<CAPTION>
The status of the plan is as follows:
December 31, 1998 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Change in Benefit
Obligation
Benefit obligation at
beginning of year $79,054 $69,257 $76,933
Service cost 240 333 214
Interest cost 5,552 5,075 5,120
Amendments - 405 (7,815)
Actuarial loss (gain) 9,244 9,026 (715)
Benefits paid (5,577) (5,042) (4,480)
- ---------------------------------------------------------------------
Benefit obligation at end
of year $ 88,513 $79,054 $69,257
Change in Plan Assets
Fair value of plan assets
at beginning of year $ 2,049 $ 2,486 $ 3,619
Actual return on plan
assets 163 206 94
Employer contribution 4,891 4,399 3,253
Benefits paid (5,577) (5,042) (4,480)
- ---------------------------------------------------------------------
Fair value of plan assets
at end of year $ 1,526 $ 2,049 $ 2,486
Funded status (86,987) (77,005) (66,771)
Unrecognized transition
obligation 55,296 59,245 63,644
Unrecognized prior service
cost 627 692 0
Unrecognized net loss
(gain) 1,777 (8,259) (20,049)
- ---------------------------------------------------------------------
Accrued benefit cost $(29,287) $(25,327) $(23,176)
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
The components of the estimated postretirement benefit
cost are as follows:
In thousands of dollars 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 240 $ 333 $ 214
Interest on APBO 5,552 5,075 5,120
Return on plan assets (163) (206) (244)
Amortization of:
Transition obligation 3,950 3,966 4,079
Prior service cost 65 145 19
Gains (849) (1,763) (1,829)
- ---------------------------------------------------------------
Net postretirement benefit cost $8,795 $7,550 $7,359
===============================================================
</TABLE>
<TABLE>
<CAPTION>
The following assumptions were used to value the
postretirement benefit obligation:
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 6.8% 7.0% 7.5%
Expected return on plan assets 9.5% 9.5% 9.0%
Rate of salary increase 5.0% 5.0% 5.0%
Assumed rate of increase in cost
of covered health care benefits 5.5% 5.6% 6.1%
===============================================================
</TABLE>
Increases in health care costs were assumed to decline
consistently to 5.0% by 2006 and remain at that level
thereafter. If the health care cost trend rates were
increased by one percentage point, the accumulated
postretirement benefit health care obligation as of December
31, 1998 would increase by $6.1 million while the sum of the
service and interest cost components of the net
postretirement benefit health care cost for 1998 would
increase by $0.4 million. If the health care cost trend
rates were decreased by one percentage point, the
accumulated postretirement benefit health care obligations
as of December 31, 1998 would decrease by $5.8 million while
the sum of the service and interest cost components of the
net postretirement benefit health care cost for 1998 would
decrease by $0.4 million.
The Company changed its assumptions used in 1998 and
1997 for the weighted average discount rate. In 1997, the
Company changed its assumptions for the expected return on
plan assets. These changes in assumptions did not have a
material effect on the 1998 or 1997 postretirement expense.
Note 7: Stock Option Plans and Other Common Stock
Transactions
The Company participates in Frontier's stock option
plans for its directors, executives, and certain employees.
The exercise price for all plans is the fair market value of
the stock on the date of the grant. The options expire ten
years from the date of the grant. The options vest over a
period from one to three years. The maximum number of
shares which may be granted under the executive plan is
limited to one percent of the number of issued shares,
including treasury shares, of Frontier's common stock during
any calendar year. The maximum number of shares which may
be granted under the employee plan is a total of 8,000,000
shares over a ten year period. The maximum number of shares
which may be granted under the directors plan is 1,000,000
shares.
Note 8: Business Segment Information
Effective December 31, 1998, the Company has
adopted the provisions of FAS 131, "Disclosures about
Segments of an Enterprise and Related Information." 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 had no
impact on the Company's financial position, results of
operations or cash flows. Comparative information for
earlier years has been restated.
The Company reports its operating results in two
segments: Local Services and Directory Services. The change
in the definition of the Company's segments has been made to
better reflect the changing scope of the businesses in which
FTR operates.
Revenue, cost and expenses, operating income,
depreciation, and identifiable assets by business segment
are set forth in the Business Segment Information on page
18.
Note 9: Other Accounting Pronouncements Adopted
The Company adopted the provisions of FAS 130,
"Reporting Comprehensive Income" as of January 1, 1998.
This statement establishes standards for reporting and
displaying 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. There were no items of
comprehensive income during the year ended December 31,
1998; therefore, net income is equivalent to total
comprehensive income.
On June 17, 1998, the Financial Accounting Standards
Board issued FAS 133, "Accounting for Derivative Instruments
and Hedging Activities" effective for fiscal years beginning
after June 15, 1999. This statement standardizes the
accounting for derivatives and hedging activities and
requires that all derivatives be recognized in the statement
of financial position as either assets or liabilities at
fair value. Changes in the fair value of derivatives that
do not meet the hedge accounting criteria are to be reported
in earnings. Adoption of this standard is not expected to
have a material effect on the Company's financial position,
results of operations or cash flows.
Effective January 1, 1996, the Company adopted FAS 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". FAS 121 requires that
certain long-lived assets and identifiable intangibles be
written down to fair value whenever an impairment review
indicates that the carrying value cannot be recovered on an
undiscounted cash flow basis. The statement also requires
that certain long-lived assets and identifiable intangibles
to be disposed of, be reported at fair value less selling
costs. The Company's adoption of this standard resulted in
a non-cash charge of $6.9 million (net of a tax benefit of
$3.7 million) and is reported as a cumulative effect of a
change in accounting principle. The charge represents the
cumulative adjustment required by FAS 121 to remeasure the
carrying amount of certain assets held for disposal as of
January 1, 1996. These assets held for disposal consist
principally of telephone switching equipment as a result of
management's commitment, in late 1995, to a central office
switch consolidation project.
Note 10: Commitments and Contingencies
Legal Matters - The Company is party to a number of
judicial, regulatory and administrative proceedings
involving matters incidental to its business. The Company's
management does not believe that any material liability will
be imposed as a result of any of these matters.
Leases - The Company leases buildings, land, office
space, switching and other equipment under various operating
lease contracts. Total rental expense amounted to$2.6
million in 1998, $2.7 million in 1997 and $2.8 million in
1996.
Minimum annual rental commitments under non-cancelable
operating leases in effect on December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------
Non-Cancelable Leases
---------------------
Years Buildings Equipment
- --------------------------------------
<S> <C> <C>
1999 $ 560 $1,095
2000 231 1,095
2001 161 -
2002 113 -
2003 88 -
2004 and thereafter 85 -
- --------------------------------------
Total $ 1,238 $2,190
======================================
</TABLE>
Note 11: Regulatory Matters
Open Market Plan
The Company began its fifth year of operations under the
Open Market Plan in January 1999. 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.
Results since implementation of the Open Market Plan are
considered to have been constructive for the Company as a
whole.
During the seven year period of the Open Market Plan,
the Company will not be regulated by rate-of-return
regulation, but instead, will be regulated under pure price
cap regulation. Over this period, planned rate reductions of
$21.0 million (the "Rate Stabilization Plan") will be
implemented for Rochester area consumers, including $16.5
million of which occurred through 1998, and an additional
$1.5 million which commenced in January 1999. 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.
During the second quarter of 1997 the FCC issued
decisions that are intended to implement provisions of the
Telecommunications Act. Of significance were decisions that
outlined changes in the structure of universal service
support and in the framework that applies to certain
interstate rates that are generally characterized as access-
related charges. During the second and third quarters of
1997, a Federal appeals court issued a series of decisions
reversing parts of an earlier FCC order that set out
conditions governing the provision of interconnection
services. These orders were appealed further and the U.S.
Supreme Court on January 25, 1999 reinstated several
portions of the FCC's order. The Company has not completed
its analysis of the impact of the Supreme Court's action.
Under the Telecommunications Act and a statewide
proceeding, the New York State Public Service Commission
("NYSPSC") is considering the prices that local exchange
companies in New York may charge for "unbundled" service
elements such as links (the wire from the switch to the
customer premise), ports (the portion of the switch that
terminates the link) and switch usage features. The Company
is actively participating in this proceeding and expects the
NYSPSC to issue one or more decisions on service elements in
1999. The NYSPSC has issued a Notice Inviting Comments in
which it has proposed to make further changes in pricing
under the Open Market Plan. These pricing changes could
reduce some prices to competitors for network elements and
other offerings, but could also reduce the amount paid by the
Company for reciprocal compensation. The issues being
addressed by the NYSPSC have been under consideration since
1995. The Company cannot predict the ultimate impact of any
NYSPSC action in this proceeding.
Management believes there continues to be significant
market and business opportunities, as well as uncertainties,
associated with the Company's Open Market Plan.
There can be no assurance that the changing regulatory
environment will positively impact the Company.
Dividend Policy
The Open Market Plan prohibits the payment of dividends
by the Company to Frontier if (i) the Company's senior debt
has been downgraded to "BBB" by Standard & Poor's ("S&P"),
or the equivalent rating by other rating agencies, or is
placed on credit watch for such a downgrade, or (ii) certain
service quality measures fall below minimum levels
stipulated in the Open Market Plan. Dividend payments to
Frontier also require that the Company's directors certify
that such dividends will not impair the Company'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, the Company failed to achieve the service
quality levels required by the Open Market Plan. FTR
requested a waiver, but was denied. The NYSPSC's ruling
resulted in a restriction on the flow of dividends from the
Company to Frontier. On October 22, 1997, the NYSPSC
adopted an order requiring the Company to issue refunds of
approximately $0.9 million, $2.60 per customer. Reserves
sufficient to cover the refund were established in 1996.
These refunds have been issued.
On October 15, 1998, the NYSPSC approved a proposal by the
Company for revision of its service incentive plan that:
-required a rebate of $8.00 per customer to resolve all service
penalties for 1997 and 1998, such rebates have been issued,
-established a rebate/client program for missed appointments, and
-increased the amounts at risk for the period 1999-2001
should the Company fail to meet service levels.
In 1998, the Company completed commitments to the
NYSPSC to increase its capital expenditures to a minimum of
$80.0 million and added employees in service-affecting
areas.
The temporary restriction of dividend payments to
Frontier will remain in place until the NYSPSC is satisfied
that the Company's service levels demonstrate that the
Company has rectified the service deficiency. Cash
restricted for dividend payments by the Company as of
December 31, 1998 was approximately $53.0 million.
Note 12: Related Party Transactions
The advances to (from) affiliate balances of $11.9
million, $11.4 million and ($3.8) million at December 31,
1998, 1997 and 1996, respectively, represent funds advanced
to (from) Frontier by the Company. Accounts payable to
affiliates at December 31, 1998, 1997 and 1996 includes $1.3
million, $1.5 million and $15.4 million, respectively, due
to Frontier. Accounts receivable from affiliates includes
$0.5 million at December 31, 1998, $1.6 million at December
31, 1997 and $0.6 million at December 31, 1996, due from
Frontier.
The Company paid $10.8 million in 1998, $11.1 million
in 1997 and $12.2 million in 1996 to Frontier for allocated
corporate charges primarily for executive, legal, human
resources and financial assistance, as well as rent for
space occupied at Frontier Center. The Company also paid
$19.5 million , $18.5 million and $16.5 million to an
affiliate, Frontier Information Technologies for data
processing services and support during 1998, 1997 and 1996,
respectively. Other services purchased from affiliates
include supplies, materials management, telemarketing, long
distance, cellular and paging services. These services
amounted to $20.0 million, $15.6 million and $16.6 million
during 1998, 1997 and 1996, respectively.
In addition, the Company provides to its affiliates,
Frontier Communications International and Frontier
Communications of Rochester, billing and collection
services, operator services, and business office support
services. The Company also provides administrative support
services for other regulated telephone company affiliates.
The total of all these services amounted to $8.1 million,
$9.6 million and $9.1 million during 1998, 1997 and 1996,
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction I.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction I.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to General Instruction I.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction I.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Index to Financial Statements
Page
Report of Independent Accountants 17
Business Segment Information 18
Statements of Income 19
Balance Sheets 20
Statements of Shareholder's Equity 21
Statements of Cash Flows 22
Notes to Financial Statements 23-34
(2) Financial Statement Schedule for the years ended December 31,
1998, 1997 and 1996:
Report of Independent Accountants on Financial
Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not
applicable or the required information is shown
in the financial statements or notes thereto.
(3) See Exhibit Index for list of exhibits filed with this
report.
The Registrant hereby agrees to furnish the Commission a
copy of each of the Indentures or other instruments defining the
rights of security holders of the long-term debt securities of
the Registrant and any of its subsidiaries for which consolidated
or unconsolidated financial statements are required to be
filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during or subsequent to
the quarter ended December 31, 1998.
(c) Refer to Item 14(a)(3) above for Exhibits required by Item 601 of
Regulation S-K.
(d) Schedules other than set forth in response to Item 14(a)(2)
above for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FRONTIER TELEPHONE OF ROCHESTER, INC.
(Registrant)
By: /s/Martin Mucci
--------------------------------
Martin Mucci, Chairman
Date: March 22, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title
--------- -----
/s/Martin Mucci Chairman of the Board and Director
- --------------------------
Martin Mucci
March 22, 1999
/s/Michael T. Carr Vice President and Treasurer
- -------------------------- (principal financial and accounting
Michael T. Carr officer)
March 22, 1999
* Director
Harlan D. Calkins
March 22, 1999
* Director
Katherine T. Clark
March 22, 1999
* Director
Maurice F. Holmes
March 22, 1999
* Director
Thomas H. Jackson
March 22, 1999
* Director
Robert Johnson
March 22, 1999
* Director
Richard P. Miller, Jr.
March 22, 1999
* Director
Christine B. Whitman
March 22, 1999
*By: /s/Martin Mucci
-------------------------- Manually signed powers of
Martin Mucci attorney for each Director
Attorney-in-Fact are
attached hereto and filed
herewith pursuant to
Regulation S-K Item 601-
(b)24 as Exhibit 24.
<PAGE>
<PAGE>
FRONTIER TELEPHONE OF ROCHESTER, INC.
EXHIBIT INDEX
Exhibit
Number Exhibit Description Reference
- ------ -------------------------- --------------
3.1 Certificate of Incorporated by reference
Incorporation dated to Exhibit 3-1 to Form 10-K for
December 8, 1994 the year ended December 31,
1995
3.2 Certificate of Amendment Incorporated by reference to
to Certificate of Exhibit 3-2 to Form 10-K for
Incorporation dated the year ended December 31,
December 20, 1994 1995
3.3 By-Laws Filed herewith
4.1 Copy of Credit Agreement Incorporated by reference to
between the Company and Exhibit 4-1 to Form 10-K for
Chase Manhattan Bank, N.A. the year ended December 31,
dated December 19, 1994 1995
and adopted January 1, 1995
4.2 Copy of Indenture between Incorporated by reference to
the Company and Chemical Exhibit 4-2 to Form 10-K for
Bank, as Trustee, dated the year ended December 31,
March 14, 1995 1995
10.1 Copy of the Restated Incorporated by reference
Supplemental Management to Exhibit 10-12 to Frontier
Pension Plan Corporation's Form 10-K for the
year ended December 31, 1996
10.2 Copy of the Restated Incorporated by reference
Supplemental Retirement to Exhibit 10-13 to
Savings Plan Frontier Corporation's
Form 10-K for the year
ended December 31, 1996
10.3 Copy of the Plan for the Incorporated by reference
Deferral of Directors Fees to Exhibit 10-34 to
Frontier Corporation's
Form 10-K for the year
ended December 31, 1994
10.4 Copy of the Directors' Incorporated by reference
Common Stock Deferred to Exhibit 10-36 to
Growth Plan Frontier Corporation's
Form 10-K for the year
ended December 31, 1994
10.5 Copy of the restated Incorporated by reference
Directors Stock Incentive to Exhibit 10-26 to
Plan dated April 26, 1996 Frontier Corporation's
Form 10-Q for the quarter
ended March 31, 1996
10.6 Copy of the Management Stock Incorporated by reference
Incentive Plan dated to Exhibit 10-23 to
April 26, 1995 Frontier Corporation's
Form 10-K for the year
ended December 31, 1995
10.7 Form of management contract Incorporated by reference to Exhibit
as amended with Mr. Carr 10.9 to Form 10-K for the year
ended December 31, 1996
10.8 Amendment No. 1 to the Incorporated by reference to Exhibit
Management Stock Incentive Plan 10.22 to Frontier Corporation's
10-Q for the quarter ended
September 30, 1997
10.9 Amendment No. 1 to the Incorporated by reference to Exhibit
Supplemental Management Pension 10.21 to Frontier Corporation's
Plan Form 10-K for the year ended
December 31, 1997
10.10 1998 Executive Compensation Incorporated by reference to Exhibit
Plan 10.19 to Frontier Corporation's
Form 10-K for the year ended
December 31, 1998
10.11 Amendment No. 2 to the Incorporated by reference to Exhibit
Management Stock Incentive Plan 10.20 to Frontier Corporation's
Form 10-K for the year ended
December 31, 1998
10.11 Amendment No. 3 to the Incorporated by reference to Exhibit
Management Stock Incentive Plan 10.21 to Frontier Corporation's
Form 10-K for the year ended
December 31, 1998
10.12 Amendment No. 2 to the Incorporated by reference to Exhibit
Supplemental Management Pension 10.23 to Frontier Corporation's
Plan Form 10-K for the year ended
December 31, 1998
23 Consent of Independent Filed herewith
Accountants
24 Powers of Attorney for a Filed herewith
majority of Directors naming
Martin Mucci attorney-in-fact
27 Financial Data Schedule Filed herewith
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholder of
Frontier Telephone of Rochester, Inc.
Our audits of the financial statements referred to in our
report dated January 25, 1999 also included an audit of the
Financial Statement Schedule listed in Item 14(a)(2) of this
Form 10-K. In our opinion, based on our audits, this Financial
Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related financial statements.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Rochester, New York
January 25, 1999
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FRONTIER TELEPHONE OF ROCHESTER, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES FOR THE YEAR ENDED DECEMBER 31, 1998
(Table 1 of 3)
In thousand of dollars
Additions
----------------------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of year expenses accounts (1) Deductions (2) end of year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for
uncollectible
accounts $2,646 $3,983 $4,711 $6,258 $5,082
===================================================================
(1) Primarily recoveries of uncollectible accounts.
(2) Amounts written off against reserve.
</TABLE>
<TABLE>
<CAPTION>
FRONTIER TELEPHONE OF ROCHESTER, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES FOR THE YEAR ENDED DECEMBER 31, 1997
(Table 2 of 3)
In thousand of dollars
Additions
----------------------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of year expenses accounts (1) Deductions (2) end of year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for
uncollectible
accounts $1,501 $4,087 $5,542 $8,484 $2,646
=================================================================
(1) Primarily recoveries of uncollectible accounts.
(2) Amounts written off against reserve.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FRONTIER TELEPHONE OF ROCHESTER, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES FOR THE YEAR ENDED DECEMBER 31, 1996
(Table 3 of 3)
In thousand of dollars
Additions
----------------------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of year expenses accounts (1) Deductions (2) end of year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for
uncollectible
accounts $1,421 $2,825 $4,919 $7,664 $1,501
==============================================================
(1) Primarily recoveries of uncollectible accounts.
(2) Amounts written off against reserve.
</TABLE>
FRONTIER TELEPHONE OF ROCHESTER, INC.
By-Laws
Effective January 28, 1999
ARTICLE I
SHAREOWNERS
Section 1 - Annual Meeting
An annual meeting of shareowners for the election of
Directors and the transaction of other business shall be held at
such time on any day in each year as shall be fixed by the Board
of Directors.
Section 2 - Special Meeting
Special Meetings of the shareowners 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 shareowners 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 shareowners 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 shareowners, 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.
Section 5 - Qualification of Voters
Every shareowner of record of common stock of the
Corporation shall be entitled at every meeting of shareowners to
one vote for every share of common stock held by the shareowner in
the shareowner's name on the record of shareowners.
Section 6 - Quorum of Shareowners
The holders of a majority of the shares entitled to vote at
such meeting shall constitute a quorum at a meeting of shareowners
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 shareowners 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 7 - Vote of Shareowners
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 shareowners 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 shareowners, 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 shareowners by the holders of
shares entitled to vote thereon.
Section 8 - Proxies
Every shareholder entitled to vote at a meeting of
shareowners or to express consent or dissent without a meeting may
authorize another person or persons to act for that shareholder by
proxy. Every proxy must be signed by the shareholder or the
shareholder's attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the 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 9 - Fixing Record Date
For the purpose of determining the shareowners entitled to
notice of or to vote at any meeting of shareowners or any
adjournment thereof, or to express consent or dissent from any
proposal without a meeting, or for the purpose of determining
shareowners 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 shareowners. Such date shall
not be more than fifty nor less than ten days before the date of
such meeting, nor more than fifty days prior to any other action.
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 shareowners, the shareowners shall
elect no more than fourteen and no less than six directors. A
majority of the membership of the Board of Directors of the
Corporation shall be outside directors, i.e., they may not be
officers or employees of the Corporation nor may they be
directors, officers or employees of Frontier Corporation or of
any affiliate of Frontier Corporation. Only one of the
Corporation's Directors may simultaneously serve as a Director,
Officer or employee of Frontier Corporation or any of Frontier
Corporation's Affiliates other than the Corporation.
Section 3 - Election, Term and Qualifications of Directors
At each annual meeting of shareowners, 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 affiliate 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 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
shareowners' 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.
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 - Committees of Directors
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 other
committees each consisting of three or more directors.
Unless a greater proportion is required by the resolution
designating a committee of the Board of Directors, a quorum for
the transaction of business of a committee shall consist of
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 of Frontier Corporation shall have
authority to fix the compensation of directors of the Corporation
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 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.
(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
shareowners 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 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.
ARTICLE III
OFFICERS
Section 1 - Officers
The shareowners of the Corporation, at the time of the
annual election of directors, may elect a Chairman of the Board
of Directors and may elect a President, a Secretary and a
Treasurer, and such other officers as they may determine. Any
two or more offices may be held by the same person.
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 or the shareowners. To
the extent not set forth in these By-Laws or so prescribed by the
Board of Directors or shareowners, 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.
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 shareowners.
(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 or shareowners, 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
shareowners, when present, and at meetings of the Board of
Directors in the absence of the Chairman of the Board, if
such there be.
(c) Secretary
The Secretary shall issue notices of all meetings of
shareowners 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.
(d) 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.
(e) Assistant Officers
Any Assistant Officer elected by the shareowners or 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 shareowners or 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
shareowners, Board of Directors and any committees of the Board;
and (c) a current list of the directors and officers and their
residence addresses.
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 shareowners, 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 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 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
amended, repealed, or adopted by the Board of Directors, but any
By-Law adopted by the Board may be amended or repealed by the
shareowners 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
shareowners for the election of directors the By-Law so adopted,
amended or repealed, together with a concise statement of the
changes made.
Section 3 - Dividends
As a condition of any decision by the Board of Directors to
pay dividends on the Corporation's common stock, the Board of
Directors shall certify quarterly that the payment of dividends
will neither impair the Corporation's service quality nor its
ability to finance its short and long term capital needs at
reasonable rates while maintaining a debt rating target of "A"
(for Standard and Poors, or the equivalent for other rating
agencies). Unless authorized by the New York Public Service
Commission, the Board of Directors shall not authorize the payment
of dividends on the Corporation's common stock while the service
quality or senior debt credit rating conditions apply under which
the payment of dividends is prohibited in Opinion No. 94-25 of the
Public Service Commission in Case 93-C-0103 - Petition of
Rochester Telephone Corporation for Approval of Proposed
Restructuring Plan (issued and effective November 10, 1994).
<PAGE>
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statement on
Form S-4 (File No.33-91250) of Frontier Telephone of Rochester,
Inc. of our report dated January 25, 1999 appearing on page 17 of
Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears on
page 42 of this Form 10-K.
/s/PricewaterhouseCoopers LLP
_____________________________
PricewaterhouseCoopers LLP
Rochester, New York
March 26, 1999
22124
POWER OF ATTORNEY
I, the undersigned, hereby constitute and appoint MARTIN
MUCCI as my true and lawful agent and attorney-in-fact to act
with full power and authority and in my name, place and stead as
I, myself, could act for the sole purpose of executing the Form
10-K of Frontier Telephone of Rochester, Inc. for the year ended
December 31, 1998, pursuant to Instruction D(2)(a) of the Form
10-K and in accordance with Regulation S-K Item 601(b)(24) of the
Securities Act of 1933 and the Securities Exchange Act of 1934,
and with full and unqualified authority to delegate such power to
any person or persons as my attorney-in-fact shall select.
IN WITNESS WHEREOF, THIS INSTRUMENT HAS BEEN SIGNED AND
DELIVERED BY THE UNDERSIGNED AS OF MARCH 15, 1999.
/s/ Harlan D. Calkins
____________________________________
Harlan D. Calkins
/s/ Katherine M. Clark
____________________________________
Katherine M. Clark
/s/ Maurice F. Holmes
____________________________________
Maurice F. Holmes
/s/ Thomas H. Jackson
____________________________________
Thomas H. Jackson
/s/ Robert Johnson
____________________________________
Robert Johnson
/s/ Richard P. Miller, Jr.
____________________________________
Richard P. Miller, Jr.
/s/ Christine B. Whitman
____________________________________
Christine B. Whitman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Frontier Telephone of Rochester, Inc.'s financial statements for the
year ended December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000936105
<NAME> FRONTIER TELEPHONE OF ROCHESTER, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 53,103
<SECURITIES> 0
<RECEIVABLES> 42,861
<ALLOWANCES> 5,082
<INVENTORY> 336
<CURRENT-ASSETS> 122,565
<PP&E> 998,162
<DEPRECIATION> 637,514
<TOTAL-ASSETS> 504,798
<CURRENT-LIABILITIES> 62,108
<BONDS> 40,000
0
0
<COMMON> 232,165
<OTHER-SE> 119,396
<TOTAL-LIABILITY-AND-EQUITY> 504,798
<SALES> 0
<TOTAL-REVENUES> 336,902
<CGS> 0
<TOTAL-COSTS> 242,933
<OTHER-EXPENSES> (1,097)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,713
<INCOME-PRETAX> 93,353
<INCOME-TAX> 32,630
<INCOME-CONTINUING> 60,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,723
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
