(2) Recent Accounting Pronouncements:

Recently Adopted Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers.” This standard, along with its related amendments, requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which they expect to be entitled in exchange for those goods or services. Frontier adopted the standard during the first quarter of 2018, using the modified retrospective method – i.e., by recognizing the cumulative effect of initially applying Accounting Standards Codification Topic (ASC) 606 as an adjustment to the opening balance of shareholders’ equity at January 1, 2018. The comparative information for historical periods has not been adjusted and continues to be reported under ASC 605. See Note 3 for additional details and disclosures.

The table below summarizes the impact of the adoption of ASC 606 on revenue, operating expenses, and operating income for the year ended December 31, 2018:



	For the year ended December 31, 2018
					Amounts without
			Adjustments		Adoption of
($ in millions)	As Reported		for ASC 606		ASC 606

Revenue	$	8,611	$	(15)	$	8,596
Operating expenses		7,784		15		7,799
Operating income	$	827	$	(30)	$	797

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. This standard was established to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost by requiring that an employer disaggregate the service cost component of periodic benefit cost from the other components of net benefit cost. The amendments in the update also provide explicit guidance on how to present the service cost component and other components of net benefit cost in the Statement of operations and allow only the service cost components of net benefit cost to be eligible for capitalization. Frontier retrospectively adopted the standard during the first quarter of 2018 and applied changes to our presentation of pension settlement costs and certain other benefit costs. Frontier utilized the practical expedient utilizing the amounts disclosed in its pension and other postretirement plan note (Note 18) for prior comparative periods as the estimation basis for applying retrospective presentation requirements.

The table below summarizes the impact of adoption of ASU No. 2017-07 for the years ended December 31, 2017 and 2016:



	For the year ended December 31,
	2017						2016
			Impact of						Impact of
			Adoption of						Adoption of
($ in millions)	As Reported		ASU 2017-07		As Restated		As Reported		ASU 2017-07		As Restated
Operating expenses:
Network related expenses	$	1,959	$	(1)	$	1,958	$	1,887	$	(11)	$	1,876
Selling, general and administrative expenses	$	2,018	$	(1)	$	2,017	$	2,093	$	(12)	$	2,081
Pension settlement costs	$	83	$	(83)	$	-	$	-	$	-	$	-

Non-operating income/expenses:
Investment and other income, net	$	3	$	(2)	$	1	$	27	$	(23)	$	4
Pension settlement costs	$	-	$	83	$	83	$	-	$	-	$	-

Recent Accounting Pronouncements Not Yet Adopted

Leases

In February 2016, the FASB issued ASU No. 2016 – 02, “Leases (ASC 842).” This standard, along with its amendments, establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Upon implementation, lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model and the new revenue recognition standard.

The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Frontier plans to adopt ASC 842 using the modified retrospective approach. Therefore, we will not adjust the balance sheet for comparative periods but will record a cumulative effect adjustment to accumulated deficit on January 1, 2019.

For lessee and lessor agreements, the new standard provides a number of optional practical expedients in transition. Frontier expects to elect the ‘package of practical expedients’, which permits the Company to not reassess under the new standard it’s prior conclusions about lease identification, lease classification, and initial direct costs. Additionally, Frontier expects to elect the land easement practical expedient, which permits the Company to account for land easements under the new standard only on a prospective basis. Frontier does not expect to elect the us of hindsight practical expedient.

For lessee agreements, the standard also provides practical expedients for an entity’s ongoing accounting. Frontier expects to elect the short-term lease recognition exemption for all leases that qualify. This means, for leases with terms of less than twelve months, we will not recognize assets or liabilities, including existing leases at transition. Frontier does not expect to elect the practical expedient to not separate lease and non-lease components. On adoption, we expect to recognize additional operating liabilities with corresponding right of use assets based on the present values of the remaining minimum rental payments for existing operating leases. Additionally, we expect to recognize the deferred gain of approximately $16 million on certain failed leaseback transactions that would qualify for sale-leaseback accounting under the new guidance as a cumulative effect adjustment to accumulated deficit on January 1, 2019.

A significant number of Frontier’s telecom service contracts include equipment rentals to its customers, The Company expects to apply the practical expedient to account for those associated equipment rentals and telecom services as a single, combined component. We have evaluated the service component to be ‘predominant’ in these contracts and will account for the combined component as a single performance obligation under ASC 606. Frontier expects substantially all of its lessor agreements to be classified as operating leases under the new standard.

We are implementing changes to our systems, processes, policies and internal controls to meet the standard’s reporting and disclosure requirements. The impact of adopting this standard will result in an increase to assets and liabilities that we expect is less than 3% of our total assets and total liabilities. The impact to the consolidated statement of operations, comprehensive loss, equity and cash flows is expected to be immaterial.

Financial Instrument Credit Losses

In June 2016, The FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”, which amends the current financial statement impairment model requiring entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Frontier is currently evaluating the impact of adoption of this standard on our consolidated financial statements.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, FASB issued ASU 2018-02, which allows for the reclassification of certain income tax effects related to the Tax Cuts and Jobs Act (the “Tax Act”) between “Accumulated other comprehensive income” and “Retained earnings.” This ASU relates to the requirement that adjustments to deferred tax liabilities and assets related to a change in tax laws or rates to be included in “Income from continuing operations,” even in situations where the related items were originally recognized in “Other comprehensive income” (rather than in “Income from continuing operations”). The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this ASU is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax laws or rates were recognized. Frontier plans to adopt the standard during the first quarter of 2019. Upon adoption, Frontier anticipates an increase to Retained earnings of approximately $80 million, with a corresponding decrease to Accumulated other comprehensive income on the consolidated balance sheet.

Improvements to Nonemployee Share-Based Payment Accounting

In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, “Compensation — Stock Compensation (ASC 718), Improvements to Nonemployee Share-Based Payment Accounting,” which aligns the measurement and classification guidance for share-based payments to nonemployees with that for employees, with certain exceptions. It expands the scope of ASC 718 to include share-based payments granted to nonemployees and supersedes the guidance in ASC 505-50. Currently, nonemployee share-based payment awards are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever can be more reliably measured. The ASU retains the existing cost attribution guidance, which requires entities to recognize compensation cost for nonemployee awards in the same period and in the same manner (i.e., capitalize or expense) they would if they paid cash for the goods or services, but it moves the guidance to ASC 718. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Frontier expects a minimal impact to our financial statements from adoption of this standard.

Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which adds, removes, and modifies certain disclosures required by ASC 820. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. Frontier is currently evaluating the impact of the adoption of this standard on our disclosures.

Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans". This standard eliminates requirements for certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures under defined benefit pension plans and other postretirement plans. We are required to adopt this guidance beginning January 1, 2021. Early adoption is permitted. The amendments in the standard would need to be applied on a retrospective basis. Frontier is currently evaluating the impact of the adoption of this standard on our disclosures.