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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 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, Rochester, NY 14646-0700
(Address of principal executive offices) (Zip Code)
(716) 777-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No___
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
No Par, No Stated Value Common Stock: 772 shares outstanding
as of April 30, 1999
The Registrant meets the conditions set forth in general
instruction H(1)(a) and (b) of Form 10-Q and is therefore
filing this form with the reduced disclosure format.
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FRONTIER TELEPHONE OF ROCHESTER, INC.
Form 10-Q
Index
Page Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Business Segment Information for the three months ended
March 31, 1999 and 1998 3
Statements of Income for the three months ended
March 31, 1999 and 1998 4
Balance Sheets as of March 31, 1999 and
December 31, 1998 5
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion of the Results of
Operations and Analysis of Financial Condition 9-15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Employees and Labor Relations 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Index to Exhibits 18
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<TABLE>
FRONTIER TELEPHONE OF ROCHESTER, INC.
Business Segment Information
(Unaudited)
<CAPTION>
3 Months Ended March 31,
In thousands of dollars 1999 1998
- -----------------------------------------------------
<S> <C> <C>
Local Services:
Revenue $ 75,815 $ 73,934
Costs and Expenses 45,075 41,724
Depreciation and Amortization 15,285 14,342
- -----------------------------------------------------
Operating Income $ 15,455 $ 17,868
Total Assets $ 510,653 $ 493,345
- -----------------------------------------------------
Directory Services:
Revenue $ 10,023 $ 9,357
Costs and Expenses 4,063 3,910
- -----------------------------------------------------
Operating Income $ 5,960 $ 5,447
Total Assets $ 12,164 $ 11,453
- -----------------------------------------------------
Consolidated
Revenue $ 85,838 $ 83,291
Costs and Expenses 49,138 45,634
Depreciation and Amortization 15,285 14,342
- -----------------------------------------------------
Operating Income $ 21,415 $ 23,315
Total Assets $ 522,817 $ 504,798
=====================================================
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
FRONTIER TELEPHONE OF ROCHESTER, INC.
Statements of Income
(Unaudited)
<CAPTION>
3 Months Ended March 31,
In thousands of dollars 1999 1998
- ---------------------------------------------------------------------
<S> <C> <C>
Revenues $85,838 $83,291
- ---------------------------------------------------------------------
Costs and Expenses
Operating expenses 43,341 39,724
Depreciation and amortization 15,285 14,342
Taxes other than income taxes 5,797 5,910
- ---------------------------------------------------------------------
Total Costs and Expenses 64,423 59,976
- ---------------------------------------------------------------------
Operating Income 21,415 23,315
Interest expense 199 490
Other income 584 12
- ---------------------------------------------------------------------
Income Before Taxes 21,800 22,837
Income taxes 7,555 8,041
- ---------------------------------------------------------------------
Net Income $14,245 $14,796
=====================================================================
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
FRONTIER TELEPHONE OF ROCHESTER, INC.
Balance Sheets
<CAPTION>
March 31, December 31,
1999 1998
In thousands of dollars (Unaudited)
- ---------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 52,022 $ 53,103
Accounts receivable, (less allowance for
uncollectibles of $5,493 and $5,082,
respectively) 37,522 37,779
Accounts receivable - affiliates 3,158 3,200
Advances to affiliates 19,874 11,933
Materials and supplies 402 336
Prepaid directory 10,445 14,200
Other prepayments 1,694 2,014
- ----------------------------------------------------------------
Total Current Assets 125,117 122,565
- ----------------------------------------------------------------
Property, plant and equipment, net 375,019 360,648
Prepaid pension 21,695 20,619
Deferred and other assets 986 966
- ----------------------------------------------------------------
Total Assets $522,817 $504,798
================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable $32,964 $36,457
Accounts payable - affiliates 12,479 8,534
Advance billings 4,628 4,648
Accrued taxes 10,946 5,466
Other liabilities 4,448 7,003
- -----------------------------------------------------------------
Total Current Liabilities 65,465 62,108
- -----------------------------------------------------------------
Long-term debt 40,000 40,000
Deferred income taxes 18,601 19,124
Accrued postretirement
benefits obligation 30,318 29,287
Other long-term liabilities 2,627 2,718
- -----------------------------------------------------------------
Total Liabilities 157,011 153,237
- -----------------------------------------------------------------
Shareholder's Equity
Common stock, no par value and
additional paid in capital;
authorized 1,000 shares; 772
shares issued in 1999 and 1998 232,165 232,165
Retained earnings 133,641 119,396
- -----------------------------------------------------------------
Total Shareholder's Equity 365,806 351,561
- -----------------------------------------------------------------
Total Liabilities and
Shareholder's Equity $522,817 $504,798
=================================================================
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
FRONTIER TELEPHONE OF ROCHESTER, INC.
Statements of Cash Flows
(Unaudited)
<CAPTION>
3 Months Ended March 31,
In thousands of dollars 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $14,245 $14,796
- ------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,285 14,342
Changes in operating assets and liabilities:
Decrease in accounts receivable 299 5,854
Increase in materials and supplies (66) (81)
Decrease in prepaid directory 3,755 4,132
Decrease in other prepayments 320 58
Increase in prepaid pension (1,076) (731)
(Increase) decrease in deferred
and other assets (20) 178
Increase in accounts payable 452 1,973
Decrease in advance billings (20) (53)
Increase in taxes accrued 5,480 9,421
Decrease in other liabilities (2,555) (2,435)
Decrease in deferred income taxes (523) (789)
Increase in postretirement
benefits obligation 1,031 946
Decrease in other long-term liabilities (91) (153)
- ------------------------------------------------------------------------
Total adjustments 22,271 32,662
- ------------------------------------------------------------------------
Net cash provided by operating activities 36,516 47,458
- ------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and equipment (29,656) (17,088)
- ------------------------------------------------------------------------
Net cash used in investing activities (29,656) (17,088)
- ------------------------------------------------------------------------
Financing Activities
Advances to affiliate (7,941) (4,285)
- ------------------------------------------------------------------------
Net cash used in financing activities (7,941) (4,285)
- ------------------------------------------------------------------------
Net Increase (decrease) in Cash and
Cash Equivalents (1,081) 26,085
Cash and Cash Equivalents at Beginning
of Period 53,103 2,406
- ------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $52,022 $28,491
========================================================================
See accompanying Notes to Financial Statements.
</TABLE>
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Frontier Telephone of Rochester, Inc.
Notes to Financial Statements
(Unaudited)
Note 1: Accounting Policies
The financial statements of Frontier Telephone of
Rochester, Inc. ("FTR" or the "Company") (formerly Rochester
Telephone Corp.), a wholly owned subsidiary of Frontier
Corporation ("Frontier"), are unaudited and have been
prepared in accordance with generally accepted accounting
principles for interim financial reporting and Securities
and Exchange Commission ("SEC") regulations. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements reflect all
adjustments (of a normal and recurring nature) which are
necessary to present fairly the financial position, results
of operations, and cash flows for the interim periods.
These financial statements should be read in conjunction
with the Annual Report of the Company on Form 10-K for the
year ended December 31, 1998.
Preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2: Long-Term Debt
At March 31, 1999, the Company's total outstanding long-
term debt amounted to $40.0 million of medium-term notes
which mature in 2002.
Note 3: Regulatory Matters
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.
Note 4: Cash Flows
For purposes of the Statement of Cash Flows, the
Company considers all highly-liquid investments with an
original maturity of three months or less to be cash
equivalents.
As a result of the temporary restriction on dividends
discussed in Note 3, no dividends were paid during the
three months ended March 31, 1999 or 1998. Due to this
restriction, surplus cash is being invested in interest-
bearing accounts.
Actual interest paid was $1.5 million for each of the
quarters ended March 31, 1999 and 1998. Interest costs
associated with the construction of capital assets are
capitalized. Total amounts capitalized for the first three
months of 1999 and 1998 totaled $0.6 million and $0.3
million, respectively. During the first three months of
1999 and 1998, the Company paid income taxes of $1.2 million
and received a refund of $1.3 million, respectively.
ITEM 2 - MANAGEMENT'S DISCUSSION OF THE RESULTS OF
OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION
Three Months Ended March 31, 1999
The matters discussed throughout this Form 10-Q, except
for historical financial results contained herein, may be
forward-looking in nature or "forward-looking statements."
Actual results may differ materially from the forecasts or
projections presented. Forward-looking statements are
identified by such words as "expects," "anticipates,"
"believes," "intends," "plans," and variations of such words
and similar expressions. The Company believes that its
primary risk factors include, but are not limited to:
changes in the overall economy and the 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 the March 31, 1999 Form 10-Q
should be evaluated in light of these important risk
factors. For additional disclosure regarding risk factors
refer to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
DESCRIPTION OF BUSINESS
Frontier Telephone of Rochester, Inc. ("FTR" or the
"Company") (formerly Rochester Telephone Corp.) is a
regulated independent telephone company that serves
approximately 554,000 access lines in the greater Rochester,
New York area. The Company was incorporated in December
1994 as a wholly owned subsidiary of Frontier Corporation.
Frontier has served the Rochester market since 1920 and has
evolved into a diversified national telecommunications firm.
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.
RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 1999 and 1998
were $85.8 million and $83.3 million, respectively. This
3.1% quarter-to-date revenue growth is attributable to
demand for dedicated circuits and enhanced features.
Costs and expenses for the three months ended March 31,
1999 amounted to $64.4 million, an increase of $4.4 million
or 7.4% over the same period in the prior year. This
increase is attributable to service quality improvements,
increased depreciation expense and an increase in customer
service costs due to access line growth.
Depreciation and amortization expense of $15.3 million
for the quarter ended March 31, 1999 increased $0.9 million
or 6.6%, primarily due to depreciation on capital additions
related to telephone plant and equipment in service.
Net income for the three month period ended March 31,
1999 was $14.2 million, a decrease of $0.6 million or 3.7%
over the same period in 1998. The decrease in net income is
due to the increase in operating expenses on a year over
year basis.
Other Income Statement Items
Interest expense was $0.2 million and $0.5 million for
the three months ended March 31, 1999 and 1998,
respectively, representing a decrease of $0.3 million or
59.4%. The decrease is primarily attributable to increased
capitalized interest driven by larger capital expenditures.
The effective income tax rate for the three months
ended March 31, 1999 is 34.7%, as compared to 35.2% for the
same period in the prior year. This decrease is primarily
driven by tax exempt interest income earned on the
investment of surplus cash as a result of the temporary
dividend restriction as discussed on pages 13-14.
FINANCIAL CONDITION
Review of Cash Flow Activity
Cash provided from operations for the first three
months of 1999 decreased $10.9 million or 23.1% as compared
to the same period in the prior year. The primary drivers
of change in working capital on a year over year basis
primarily consist of a smaller decrease in accounts
receivable and a smaller increase in accrued taxes over the
prior year quarter. The fluctuation in accounts receivable
is due to the timing of receipt of payments. The reduced
cash from taxes accrued is due to the tax exempt interest
income earned on the investment of surplus cash as a result
of the temporary dividend restriction.
Cash used for investing activities was $29.7 million
for the quarter ended March 31, 1999, an increase of $12.6
million or 73.6% over the same prior year period. This
increase is driven by an increase in capital expenditures
and is primarily due to technological advancements and
expansion of the network to meet customer demand.
Financing activities resulted in a cash outflow of $7.9
million during the first three months of 1999 as compared to
$4.3 million the same period in 1998. No cash dividends
were paid to Frontier Corporation during 1999 or 1998.
Debt
At March 31, 1999, the Company's total outstanding long-
term debt amounted to $40.0 million of medium-term notes
which mature in 2002.
Debt Ratio and Interest Coverage
The Company's debt ratio (total debt as a percent of
total capitalization) decreased from 10.2% at December 31,
1998 to 9.9% at March 31, 1999. Pre-tax interest coverage
was 28.6 times through the first quarter of 1999, as
compared with 29.9 times for the first quarter of 1998.
Capital Spending
Total gross expenditures for property, plant, and
equipment in 1999 are anticipated to be in the $95 million
to $100 million range. 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.
Year 2000
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, or shortly
thereafter, 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 will include replacement of
individual end user equipment, such as personal computers
that are not compliant. 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. To date, Year 2K readiness is
progressing at a pace that is acceptable to management and
management maintains continuous contact with the Year 2K
team to receive progress reports and to address issues.
Costs. The Company has recently performed a detailed
update of Year 2K costs. Costs to date that are directly
attributable to Year 2K issues are $8.8 million, and the
Company now anticipates spending an additional $7.3 to $8.0
million during the remainder of 1999. This includes costs
directly related to Year 2K assessment and remediation and
the replacement of non-compliant systems and end user equipment,
including acceleration of replacement of non-compliant systems
and end user equipment due to Year 2K issues. A
substantial portion of the total amount has been used for
third party assistance in assessment and remediation. The
source of these funds is cash generated from operations.
The Year 2K projects have not caused the Company to forego
or defer, to any material degree, other critical IT projects.
Risks. The Company is engaged primarily in
telecommunications lines of business, and therefore connects
directly and indirectly with thousands of other carriers,
inside and outside the United States. These connections are
made through switching offices of the Company and the other
carriers. The switching offices were manufactured by and
often maintained by third parties. While many other
carriers have announced plans to engage independently in
Year 2K assessment and remediation for their networks, there
is a risk that some carriers (particularly smaller carriers
and carriers outside the United States) will not address or
resolve Year 2K issues, and that telecommunications may
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 to the telecommunications industry in general 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. Nevertheless, 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.
If the Company concludes that a manufacturer or other vendor
is unable to complete remediation in time, the Company has
the option of system or equipment replacement, an option
that is also available to the Company with respect to its
own systems and equipment. The Company has replaced some
equipment and systems, and may continue to do so in
appropriate circumstances.
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
the Company's own Optronics NetworkSM, 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 continue to
monitor efforts undertaken through regulatory agencies
(including the NYSPSC) and industry groups to assure that
Year 2K preparations are completed in a timely manner.
Consistent with the activity of its parent company,
Frontier, the Company is identifying areas in which
contingency plans are or may be appropriate. Contingency
planning does not mean that a facility or system will fail.
It may be merited because of many different factors,
including the inherent importance of a system or facility,
the response or lack of response from a third party vendor,
or the results of the Company's review and evaluation. The
Company has determined to develop contingency plans related
to the following local telephone areas: SS7 vendor
arrangements, power availability, certain OSS and CARS
operating systems, inbound call centers and internal
telephone systems. Other plans may be developed for areas
in which the Company is involved in the provision of
integrated services. These plans will continue to be
developed and tested throughout 1999 as necessary, and
closely monitored by the Company's Internal Audit department
and the Year 2K Executive Steering Committee.
In all of these areas it is the potential impact of a
failure more than the probability of a failure that has led
the Company to identify it as an area for contingency
planning. The costs of contingency planning are not expected
to be material to the Company.
OTHER ITEMS
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 FCC has recently initiated
a rulemaking to adopt new rules in light of the Supreme
Court 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.
Part II - Other Information
Item 1. 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. The Company cannot predict the final
outcome of this matter at the present time.
Item 5. Employees and Labor Relations
As of March 31, 1999 the Company had 1,646 employees,
of which 246 were management employees and 1,400 were
clerical, service and craft workers. The Frontier Telephone
of Rochester, Inc. Workers Association ("RTWA") represents
639 of such clerical and service workers and the
Communications Workers of America, Local 1170 ("CWA Local")
represents 746 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 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. The CWA filed an unfair labor practice charge over
this action. Members of the CWA Local eventually 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. Despite the appeal, the CWA Local and the Company
reached a new three year agreement in December 1998 which is
not scheduled to expire until January 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index to Exhibits
(b) Reports on Form 8-K filed during the quarter
ended March 31, 1999:
None
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
FRONTIER TELEPHONE OF ROCHESTER, INC.
-------------------------------------------
(Registrant)
Dated: May 13, 1999 By: /s/Michael T. Carr
--------------------------
Michael T. Carr
Vice President and Treasurer
(principal financial officer)
<PAGE>
<PAGE>
FRONTIER TELEPHONE OF ROCHESTER, INC.
INDEX TO EXHIBITS
Exhibit No. Description Reference
- -----------------------------------------------------------------------
3.1 Certificate of Incorporation Incorporated by
reference to
Exhibit 3.1 to Form 10-K for
the year ended
December 31, 1995.
3.2 Certificate of Amendment to Incorporated by reference to
Certificate of Incorporation Exhibit 3.2 to Form 10-K for
the year ended December 31,
1995.
3.3 Bylaws Incorporated by reference to
Exhibit 3.3 to Form 10-K for
the year ended December 31,
1998.
4.1 Indenture between the Company Incorporated by reference to
and Chemical Bank, as Trustee Exhibit 4.2 to Form 10-K for
dated March 14, 1995, $80M the year ended December 31,
Medium Term Notes, 1995 Series 1995
A and B
4.2 Supplemental Indenture between Filed herewith
the Company and Chemical
Bank, dated September 20, 1995
$80M Medium Term Notes,
1995 Series A and B
27 Financial Data Schedule Filed herewith
<PAGE>
ROCHESTER TELEPHONE CORP.
TO
CHEMICAL BANK, Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 20, 1995
(Supplemental to Indenture Dated as of March 14, 1995)
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of September 20,
1995 (this "First Supplemental Indenture"), between ROCHESTER
TELEPHONE CORP., a New York corporation (hereinafter called the
"Company"), having its principal executive offices at 180 Clinton
Avenue, Rochester, New York 14646-0700, and CHEMICAL BANK, a New
York corporation, as Trustee (hereinafter called the "Trustee"),
having its Corporate Trust Office at 450 West 33rd Street, New
York, New York 10001.
Recitals of the Company
WHEREAS, the Company has executed and delivered its
Indenture dated as of March 14, 1995 (hereinafter called the
"Indenture"), to provide for the issuance from time to time of
its unsecured and unsubordinated debentures, notes, or other
evidences of indebtedness; and
WHEREAS, the Company issued and sold on March 27, 1995
a series of Securities under the Indenture designated its Medium-
Term Notes, 1995 Series A (the "Notes") in a private placement in
reliance upon the exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act")
provided by Section 4(2) thereof; and
WHEREAS, the Company is offering to exchange (the
"Exchange") the Notes for an equal principal amount of a new
series of Securities to be issued under the Indenture,
hereinafter referred to as "Medium-Term Notes, 1995 Series B" or
"Exchange Notes", which Securities shall be identical to the
Notes in all respects except that the Exchange Notes will be
registered under the Securities Act, pursuant to a registration
statement on Form S-4 (the "Exchange Registration Statement");
and
WHEREAS, Section 901(4) of the Indenture authorizes the
Company and the Trustee to enter into supplemental indentures
without the consent of the Holders to establish the form and
terms of securities of any series as permitted by Sections 201
and 301 of the Indenture; and
WHEREAS, Section 901(10) of the Indenture authorizes
the Company and the Trustee to enter into supplemental indentures
without the consent of the Holders to make provisions with
respect to matters arising under the Indenture that will not
adversely affect the interests of Holders of Securities of any
series in any material respect; and
WHEREAS, to so provide for the establishment of the
Medium-Term Notes, 1995 Series B and to provide for the Exchange,
the Company has authorized the execution of this First
Supplemental Indenture to the Indenture and has requested the
Trustee to execute the First Supplemental Indenture; and
WHEREAS, all conditions and requirements necessary to
make this First Supplemental Indenture a valid, binding and legal
instrument have been done and performed and the execution and
delivery hereof have been in all respects duly authorized,
including the delivery to the Trustee of the Opinion of Counsel
referenced in Section 903 of the Indenture;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE
WITNESSETH:
For and in consideration of the premises, it is
mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities or of series thereof, as
follows:
Section 1. Definitions.
For all purposes of this First Supplemental Indenture,
except as otherwise expressly provided or unless the context
otherwise requires, all capitalized terms used and not defined
herein that are defined in the Indenture shall have the meanings
assigned to them in the Indenture.
Section 2. Certain Amendments.
(a) Section 101 of the Indenture shall be amended by
adding the following definitions in the proper alphabetical
order:
"Exchange Registration Statement" means the
registration statement on Form S-4, No. 33-91250, as
amended, filed by the Company with the Securities and
Exchange Commission with respect to an offer to
exchange its Securities designated "Medium-Term Notes,
1995 Series A" for its Securities designated "Medium-
Term Notes, 1995 Series B."
"Restricted Securities" means Securities not
registered under the Securities Act pursuant to an
exemption from registration set forth therein.
"Securities Act" means the Securities Act of 1933,
as amended.
(b) Section 305 of the Indenture shall be amended by
adding the following paragraphs after the last paragraph of such
section:
"The transfer and exchange of beneficial interests
in Global Securities shall be effected through the
Depository in accordance with this Indenture (including
the restrictions on transfer set forth herein) and the
procedures of the Depository therefor. Except as
expressly provided in this Indenture, the Trustee and
the Security Registrar shall have no responsibility
under this Indenture for monitoring compliance with the
terms of this Indenture with respect to any transfer or
exchange of Global Securities or beneficial interests
therein.
Except as permitted by the following paragraph,
each Security evidenced by a Global Security or a
Security in definitive registered form (and all
Securities issued in exchange therefor or in
substitution thereof) shall be subject to (i) with
respect to Global Securities, the restrictions on
transfer provided in the legend set forth in Section
203 and (ii) with respect to Restricted Securities, the
applicable legend set forth in the form of such
Restricted Securities.
Upon a request for registration of any transfer of
a Restricted Security (A) pursuant to an effective
registration statement under the Securities Act
(including, without limitation, the Exchange
Registration Statement) or (B) satisfying the
conditions for an exemption from registration in
accordance with Rule 144 under the Securities Act, in
each case in accordance with any applicable securities
laws of any state of the United States, then: (x) in
the case of any Restricted Security that is a Security
registered in definitive form, the Security Registrar
shall exchange such Restricted Security for a Security
registered in definitive form of like tenor and
aggregate principal amount with substantially similar
terms that does not bear a legend and rescind any
restriction on the transfer of such Restricted Security
and (y) in the case of any Restricted Security
represented by a Global Security, such Global Security
will not be subject to any restriction on transfer set
forth in clause (ii) of the preceding paragraph (such
sales or transfers being subject only to the provisions
of the second preceding paragraph) and shall not be
subject to the provisions of Section 204, in the case
of the Company's Securities designated "Medium-Term
Notes, 1995 Series A"; provided, however, with respect
to any request for an exchange of a Restricted Security
represented by a Global Security for a Security
registered in definitive form which does not bear a
legend, which request is made in reliance upon Rule 144
or any successor provision, the Holder thereof shall
certify in writing to the Security Registrar that such
request is so being made in reliance on Rule 144 (such
certification to be substantially in the form set forth
in Section 305A) and provide an opinion of counsel
having substantial experience in practice under the
Securities Act and otherwise reasonably acceptable to
the Company, addressed to the Company and the Trustee
and in form acceptable to the Company, to the effect
that the transfer of such Restricted Security has been
made in compliance with Rule 144 or such successor
provision.
The Company shall promptly inform the Trustee in
writing of the effective date of any registration
statement registering any of the Securities under the
Securities Act. The Trustee shall not be liable for
any action taken or omitted to be taken by it in good
faith in accordance with the aforementioned opinion of
counsel or registration statement.
Section 305A. Form of Certification.
In connection with any certification contemplated
by Section 305, relating to compliance with certain
restrictions relating to transfers or exchanges of the
Securities, such certification shall be provided
substantially in the form of the following certificate,
with only such changes as shall be reasonably approved
by the Company and reasonably acceptable to the
Trustee:
CERTIFICATE TO BE DELIVERED UPON [ ] EXCHANGE OF AN
BENEFICIAL INTEREST IN THE GLOBAL SECURITY FOR
DEFINITIVE SECURITIES OR [ ] EXCHANGE OR REGISTRATION
OF TRANSFER OF DEFINITIVE SECURITIES.
Re: Notes Due ____ ("Notes") of Rochester Telephone
Corp.
This Certificate relates to $_________ principal
amount of Notes (such designated series hereinafter
referred to as the "Securities") currently registered
in [ ] book-entry or [ ] definitive form in the name
of _________________ (the "Transferor").
All capitalized terms used but not defined herein
shall have the meanings ascribed to such terms in the
Indenture relating to the Securities.
The Transferor or Transferee:
[ ] has requested the Trustee by written order to
deliver in exchange for its beneficial interest in the
Global Security held by the Depository a Security or
Securities registered in definitive form of authorized
denominations and an aggregate principal amount equal
to its beneficial interest in such Global Security (or
the portion thereof indicated above); or
[ ] has requested the Trustee by written
order to exchange or register the transfer of a
Security or Securities registered in definitive form.
In connection with such request and in respect of
each such Security, the Transferor does hereby certify
as follows:
(1) [ ] Such Security is being transferred to
Rochester Telephone Corp.
(2) [ ] Such Security is being acquired for
its own account, without transfer.
(3) [ ] Such Security is being transferred
pursuant to an effective registration statement under
the Securities Act.
(4) [ ] Such Security is being transferred to a
qualified institutional buyer (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A
under the Securities Act.
(5) [ ] Such Security is being transferred
pursuant to the exemption from the registration
requirements of the Securities Act provided by
Regulation S thereunder.*
(6) [ ] Such Security is being transferred
to an institutional accredited investor that has
furnished to the Trustee a signed letter containing
certain representations and agreements (the form of
which can be obtained from the Trustee).*
(7) [ ] Such Security is being transferred
pursuant to another available exemption from the
registration requirements of the Securities Act.
* If box (5), (6) or (7) is checked, such
transfer is subject to the Transferor's having
previously furnished to the Company and the Trustee
such certifications, legal opinions or other
information requested to confirm that such transfer is
being made pursuant to any exemption from, and not in a
transaction subject to, the registration requirements
of the Securities Act, such as the exemption provided
by Rule 144 thereunder.
[INSERT NAME OF TRANSFEROR
OR TRANSFEREE]
By: _______________________
Date: ___________________
To be dated the date of
presentation or surrender"
(c) Section 608 of the Indenture shall be amended by
adding the following sentence after the last sentence of such
section:
"There shall be excluded from the terms of Section
310(b) of the Trust Indenture Act, the Company's Medium-
Term Notes, 1995 Series A Securities issued pursuant to
this Indenture which are outstanding."
Section 3. Medium-Term Notes 1995 Series B.
Pursuant to Section 313 of the Indenture, the Company
shall issue a series of Securities under the Indenture designated
"Medium-Term Notes, 1995 Series B" (herein sometimes referred to
as the "Exchange Notes") in an aggregate principal amount up to
$40,000,000, substantially in the form of Exhibit A hereto.
(1) The aggregate principal amount of the Exchange
Notes presently authorized to be authenticated and delivered
under the Indenture is up to $40,000,000.
(2) Principal on each Exchange Note shall be payable
on its maturity date, which shall be March 27, 2002.
(3) The interest rate on the Exchange Notes shall be
7.51% per annum.
(4) The Interest Payment Dates for the Exchange Notes
shall be March 27 and September 27 of each year commencing
September 27, 1995.
(5) The Regular Record Dates for the Exchange Notes
shall be March 12 and September 12 of each year.
(6) The Exchange Notes shall not be redeemable at the
option of the Company, nor repayable at the option of the
holder thereof.
(7) Payment of the principal of, premium, if any, and
interest due on the Exchange Notes will be made at the
office or agency of the Company maintained for that purpose
in the Borough of Manhattan, The City of New York.
(8) The Exchange Notes will be issued only in fully
registered book-entry form in minimum denominations of
$1,000 or an integral multiple thereof represented by a
Global Security registered in the name of Cede & Co., as the
registered owner and nominee of the Depositary Trust
Company, as Depositary for the Exchange Notes, or will
remain in the custody of the Trustee pursuant to the FAST
Balance Certificate Agreement between the Depositary and the
Trustee.
(9) The Exchange Notes will constitute unsecured and
unsubordinated indebtedness of the Company and will rank
equally with all of the Company's other unsecured and
unsubordinated indebtedness.
(10) All percentages resulting from any calculation
with respect to the Exchange Notes will be rounded, if
necessary, to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage
point being rounded upward. Amounts used or resulting from
such calculation on the Exchange Notes will be rounded to
the nearest one-hundredth of a unit, with .005 of a unit
being rounded upward.
(11) There shall be no sinking fund with respect to the
Exchange Notes.
(12) The Exchange Notes shall be denominated, and all
payments with respect to the Exchange Notes shall be made,
in U.S. dollars.
(13) The Trustee shall initially serve as Security
Registrar and Paying Agent for the Exchange Notes.
Section 4. Effect of this Supplemental Indenture.
(1) Upon the execution of this Supplemental Indenture,
the Indenture shall be modified in accordance herewith, and this
Supplemental Indenture shall form a part of the Indenture for all
purposes; and every Holder of Securities heretofore or hereafter
authenticated and delivered thereunder shall be bound hereby,
whether so expressed or not.
(2) This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but
one and the same instrument.
(3) This Supplemental Indenture shall be governed by
and construed in accordance with the laws of the State of New
York without giving effect to the conflicts of law provisions
thereof.
(4) The Section headings herein are for convenience
only and shall not affect the construction hereof.
(5) In case any provision of this Supplemental
Indenture or the Exchange Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
(6) Nothing in this Supplemental Indenture or in any
Exchange Notes, expressed or implied, shall give to any Person,
other than the parties hereto and their successors hereunder and
the Holders, any benefit or any legal or equitable right, remedy
or claim under this Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this
First Supplemental Indenture to be duly executed, and their
respective corporate seals to be hereunto affixed and attested,
all as of the day and year first above written.
ROCHESTER TELEPHONE CORP.
/s/ Martin Mucci
[SEAL] By: ----------------------
- --------------------------
Name: Martin Mucci
Title: Treasurer
Attest:
/s/ Gregg C. Sayre
_________________________
Secretary
CHEMICAL BANK
/s/ R. Lorenzen
By: ____________________________
Name: R. Lorenzen
Title: Senior Trust Officer
Attest:
illegible
_________________________
STATE OF NEW YORK )
SS.:
COUNTY OF MONROE )
On the 19th day of September, 1995, before me
personally came Martin Mucci, to me known, who, being by me duly
sworn, did depose and say that he is Treasurer of ROCHESTER
TELEPHONE CORP., a New York corporation, one of the persons
described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said
instrument is such corporation's seal; that it was so affixed by
authority of the Board of Directors of said corporation and that
he signed his name thereto by like authority.
/s/ Karen L. Markle
---------------------
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
SS.:
COUNTY OF NEW YORK )
On the 19th day of September, 1995, before me
personally came R. Lorenzen, to me known, who, being by me duly
sworn, did depose and say that he is a Senior Trust Officer of
Chemical Bank one of the persons described in and which executed
the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporation's seal; that it was so affixed by authority of the
Board of Directors of said corporation; and that he signed his
name thereto by like authority.
/s/ Annabelle DeLuca
-------------------------
Notary Public
[NOTARIAL SEAL]
FORM OF NOTE
This Note is a global security as defined in the Indenture
referred to herein. Unless and until it is exchanged in whole or
in part for notes in definitive registered form, this Note may
not be transferred except as a whole by the depositary to the
nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary. Unless this certificate is
presented by an authorized representative of the Depository Trust
Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and
any certificate issued is registered in the name of Cede & Co. or
such other name as requested by an authorized representative of
the Depository Trust Company and any payment is made to Cede &
Co. or to such other entity as requested by an authorized
representative, any transfer, pledge or other use hereof for
value or otherwise by or to any person is wrongful since the
registered owner hereof, Cede & Co., has an interest herein.
If applicable, the "Total Amount of OID" and "Yield to
Maturity" set forth below will be completed solely for the
purposes of applying the federal income tax original issue
discount ("OID") rules.
REGISTERED REGISTERED
No. 1 $40,000,000
ROCHESTER TELEPHONE CORP.
Medium-Term Note, 1995 Series B
CUSIP: ORIGINAL ISSUE DATE: September 20,
1995
INTEREST RATE: 7.51% STATED MATURITY DATE: March 27, 2002
INITIAL REDEMPTION DATE: N/A INTEREST PAYMENT DATES: March 27 and
September 12
ANNUAL REDEMPTION REGULAR RECORD DATES: March 12 and
PERCENTAGE REDUCTION: N/A September 12
INITIAL REDEMPTION
PERCENTAGE: N/A OPTIONAL REPAYMENT DATE(S): N/A
ORIGINAL ISSUE DISCOUNT NOTE: N/A TOTAL AMOUNT OF OID: N/A
YIELD TO MATURITY: N/A INITIAL ACCRUAL PERIOD OID: N/A
ROCHESTER TELEPHONE CORP., a New York corporation (the
"Company", which term includes any successor thereof under the
Indenture hereinafter referred to), for value received, hereby
promises to pay to CEDE & CO., or registered assigns, the
principal sum of FORTY MILLION DOLLARS ($40,000,000) on the
Stated Maturity Date specified above (except to the extent
redeemed or repaid prior to the Stated Maturity Date), and to pay
interest hereon at the Interest Rate per annum specified above,
until the principal hereof is paid or duly made available for
payment, semiannually on the Interest Payment Dates specified
above in each year commencing on the first Interest Payment Date
next succeeding the Original Issue Date specified above, unless
the Original Issue Date occurs on an Interest Payment Date or
between a Regular Record Date, as specified above, and the next
succeeding Interest Payment Date, in which case commencing on the
second Interest Payment Date succeeding the Original Issue Date,
to the registered holder hereof on the Regular Record Date with
respect to such Interest Payment Date, and on the Stated Maturity
Date specified above (or any Redemption Date as defined herein or
any Holder's Optional Repayment Date with respect to which such
option has been exercised, each such Stated Maturity Date,
Redemption Date and Optional Repayment Date being herein referred
to as a "Maturity Date" with respect to the principal payable on
such date). Interest on this Note will accrue from the most
recent Interest Payment Date to which interest has been paid or
duly provided for or, if no interest has been paid, from the
Original Issue Date specified above, until the principal hereof
has been paid or duly made available for payment. If the
Maturity Date or an Interest Payment Date falls on a day that is
not a Business Day as defined below, principal or interest
payable with respect to such Maturity Date or Interest Payment
Date will be paid on the next succeeding Business Day with the
same force and effect as if made on such Maturity Date or
Interest Payment Date, as the case may be, and no interest on
each payment shall accrue for the period from and after such
Maturity Date or Interest Payment Date, provided that if such
next succeeding Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if
made on such date. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, subject
to certain exceptions, be paid to the Person in whose name this
Note (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest,
which shall be the Regular Record Date (whether or not a Business
Day) next preceding such Interest Payment Date; provided,
however, that interest payable on the Maturity Date will be
payable to the Person to whom the principal hereof shall be
payable. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in
whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of this Note
not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner, all as more fully
provided in the Indenture. As used herein, "Business Day" means
any day, other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which banks and trust companies are
authorized or required by law, executive order or regulation to
remain closed in The City of New York.
All percentages resulting from any calculation with
respect to this Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five
one-millionth of a percentage point being rounded upward.
Amounts used or resulting from such calculation on this Note will
be rounded to the nearest one-hundredth of a unit, with .005 of a
unit being rounded upward.
Payment of the principal of, and premium, if any, and
interest due on this Note will be made in immediately available
funds at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in
such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private
debts; provided, however, that payment of interest on any
Interest Payment Date other than the Maturity Date may be made at
the option of the Company by check mailed to the address of the
Person entitled thereto as such address shall appear in the
Security Register, provided further that, if the Holder hereof is
the Holder of U.S. $5,000,000 or more in aggregate principal
amount of Notes of like tenor and term, such U.S. dollar interest
payments will be made (if so requested by such Holder) by wire
transfer of immediately available funds, but only if appropriate
wire transfer instructions have been received in writing by the
Trustee not less than fifteen calendar days prior to the
applicable Interest Payment Date.
This Note is one of a duly authorized series of
securities of the Company known as the "Rochester Telephone Corp.
Medium-Term Notes, 1995 Series B" (the "Medium-Term Notes" or
"Notes") issued and to be issued under an indenture dated as of
March 14, 1995 (as supplemented by the Supplemental Indenture
dated as of September 20, 1995, and as further amended or
supplemented, the "Indenture") between the Company and Chemical
Bank, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which
Indenture reference is hereby made for a statement of the
respective rights thereunder of the Company, the Trustee and the
Holders of the Medium-Term Notes, and the terms upon which the
Medium-Term Notes are, and are to be, authenticated and
delivered. The Medium-Term Notes may bear different dates,
mature at different times, bear interest at different rates and
vary in such other ways as are provided in the Indenture.
This Note is not subject to any sinking fund.
This Note may be subject to repayment at the option of
the Holder on any Holder's Optional Repayment Date(s), if any,
specified above. If no Optional Repayment Dates are specified
above, this Note may not be so repaid at the option of the Holder
hereof prior to the Stated Maturity Date. On any Optional
Repayment Date this Note shall be repayable in whole or in part
in increments of $1,000 (provided that any remaining principal
hereof shall be at least $1,000) at the option of the Holder
hereof at a repayment price equal to 100% of the principal amount
to be repaid, together with interest thereon payable to the date
of repayment. In order for this Note to be repaid, the Trustee
must receive at least 20 days but not more than 45 days prior to
a repayment date (i) this Note with the form attached hereto
entitled "Option to Elect Repayment" duly completed or (ii) a
telegram, facsimile transmission or letter from a member of a
national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in
the United States setting forth the name of the Holder hereof,
the principal amount of this Note, the principal amount of this
Note to be repaid, the certificate number or a description of the
tenor and terms of this Note, a statement that the option to
elect repayment is being exercised thereby and a guarantee that
this Note to be repaid with the form entitled "Option to Elect
Repayment" duly completed will be received by the Trustee not
later than five Business Days after the date of such telegram,
facsimile transmission or letter and this Note and form duly
completed are received by the Trustee by such fifth Business Day.
Exercise of the repayment option by the Holder of this Note shall
be irrevocable.
This Note may be redeemed at the option of the Company
on any date on and after the Initial Redemption Date, if any,
specified above (the "Redemption Date"), provided that the
Initial Redemption Percentage is also specified above. If no
Initial Redemption Date is specified above, this Note may not be
redeemed at the option of the Company prior to the Stated
Maturity Date. On and after the Initial Redemption Date, if any,
this Note may be redeemed at any time in whole or from time to
time in part in increments of $1,000 (provided that any remaining
principal hereof shall be at least $1,000) at the option of the
Company at the applicable Redemption Price (as defined below)
together with interest thereon payable to the Redemption Date, on
notice given not more than 60 nor less than 30 days prior to the
Redemption Date. In the event of redemption of this Note in part
only, a new Note for the unredeemed portion hereof shall be
issued in the name of the Holder hereof upon the surrender
hereof. If less than all of the Notes with like tenor and terms
are to be redeemed, the Notes to be redeemed shall be selected by
the Trustee by such method as the Trustee shall deem fair and
appropriate.
If this Note is redeemable at the option of the
Company, the "Redemption Price" shall initially be the Initial
Redemption Percentage, specified above, of the principal amount
of this Note to be redeemed and shall decline at each anniversary
of the Initial Redemption Date by the Annual Redemption
Percentage Reduction, if any, specified above, of the principal
amount to be redeemed until the Redemption Price is 100% of such
principal amount.
Interest payments on this Note will include interest
accrued to but excluding the Interest Payment Date or the
Maturity Date, as the case may be. Interest payments for this
Note will be computed and paid on the basis of a 360-day year of
twelve 30-day months.
The Indenture provides that, if at any time the Company
mortgages, pledges or otherwise subjects to any lien the whole or
any part of any property or assets now owned or hereafter
acquired by it, except as hereinafter provided, the Company will
secure the Medium-Term Notes, and any other obligations of the
Company that may then be outstanding and entitled to the benefit
of a covenant similar in effect to this covenant, equally and
ratably with the indebtedness or obligations secured by such
mortgage, pledge or lien, for as long as any such indebtedness or
obligation is so secured. The foregoing covenant does not apply
to liens granted under the Revolver Security Agreement, as
defined in the Indenture, or to the creation, extension, renewal
or refunding of purchase-money mortgages or liens, landlords'
liens with respect to the sale or financing of accounts or
chattel paper or other liens to which any property or asset
acquired by the Company is subject as of the date of its
acquisition by the Company, or to the making of any deposit or
pledge to secure public or statutory obligations or with any
governmental agency at any time required by law in order to
qualify the Company to conduct its business or any part thereof
or in order to entitle it to maintain self-insurance or to obtain
the benefits of any law relating to worker's compensation,
unemployment insurance, old age, pensions or other social
security, or with any court, board, commission or governmental
agency as security incident to the proper conduct of any
proceeding before it. Nothing contained in the Indenture
prevents any Person other than the Company from mortgaging,
pledging or subjecting any lien on any property or assets,
whether or not acquired by such Person from the Company.
If an Event of Default with respect to the Medium-Term
Notes shall occur and be continuing, the Trustee or the Holders
of not less than 25% in principal amount of the Outstanding Notes
may declare the principal of all the Medium-Term Notes due and
payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as
therein provided, the modification of the rights and obligations
of the Company and the rights of the Holders of the Outstanding
Securities of each series to be affected under the Indenture at
any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in principal amount of the
Outstanding Securities of each series affected thereby. The
Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the
Outstanding Securities of each series, on behalf of the Holders
of all Outstanding Securities of each series, to waive compliance
by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon
this Note.
No reference herein to the Indenture and no provision
of this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of, and premium, if any, and interest on
this Note at the time, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture, and subject to certain
limitations therein set forth, the transfer of this Note may be
registered on the Security Register of the Company upon surrender
of this Note for registration of transfer at the office or agency
of the Company in the Borough of Manhattan, The City of New York
duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to, the Company and the Security
Registrar, and this Note duly executed by, the Holder hereof or
by his attorney duly authorized in writing and thereupon one or
more new Medium-Term Notes, of authorized denominations and for
the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Medium-Term Notes, unless otherwise specified
therein, are issuable only in registered form without coupons in
minimum denominations of $1,000 or any amount in excess thereof
that is an integral multiple of $1,000. As provided in the
Indenture, and subject to certain limitations therein set forth,
the Medium-Term Notes are exchangeable for a like aggregate
principal amount of Medium-Term Notes in authorized
denominations, as requested by the Holder surrendering the same.
No service charge will be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration
of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name this
Note is registered as the owner hereof for all purposes, whether
or not this Note be overdue, and neither the Company, the Trustee
nor any such agent shall be affected by notice to the contrary.
The Indenture and the Medium-Term Notes shall be
governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be
performed in such State.
All terms used in this Note and not defined herein that
are defined in the Indenture shall have the meanings assigned to
them in the Indenture.
Unless the Certificate of Authentication hereon has
been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers, this Note shall not
be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed, manually or in facsimile, and a
facsimile of its corporate seal to be imprinted hereon.
ROCHESTER TELEPHONE CORP.
[SEAL] By: ------------------------
Anthony J. Cassara
President
By: -----------------------------
Gregg C. Sayre
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION:
This is one of the Securities of the series designated
herein referred to in the within-mentioned Indenture.
Chemical Bank, as Trustee
By: -----------------------------------------------
Authorized Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FRONTIER TELEPHONE OF ROCHESTER, INC.'S FINANCIAL STATEMENTS FOR
THE THREE MONTH PERIOD ENDED MARCH 31, 1999
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 52,022
<SECURITIES> 0
<RECEIVABLES> 43,015
<ALLOWANCES> 5,493
<INVENTORY> 402
<CURRENT-ASSETS> 125,117
<PP&E> 1,026,169
<DEPRECIATION> 651,150
<TOTAL-ASSETS> 522,817
<CURRENT-LIABILITIES> 65,465
<BONDS> 40,000
0
0
<COMMON> 232,165
<OTHER-SE> 133,641
<TOTAL-LIABILITY-AND-EQUITY> 522,817
<SALES> 0
<TOTAL-REVENUES> 85,838
<CGS> 0
<TOTAL-COSTS> 64,423
<OTHER-EXPENSES> (199)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 584
<INCOME-PRETAX> 21,800
<INCOME-TAX> 7,555
<INCOME-CONTINUING> 14,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,245
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
