Frontier Communications 2004 Annual Report Download - page 20

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
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Issuance of Common Stock
On August 17, 2004 we issued 32,073,633 shares of common stock, including 3,591,000 treasury shares, to our equity unit
holders in settlement of the equity purchase contract component of the equity units. With respect to the $460.0 million senior
note component of the equity units, we repurchased $300.0 million principal amount of these notes in July 2004. The
remaining $160.0 million of the senior notes were repriced and a portion was remarketed on August 12, 2004 as the 6.75%
notes due August 17, 2006. During August and September, 2004, we repurchased an additional $108.2 million of the 6.75%
notes which, in addition to the $300.0 million purchased in July, resulted in a pre-tax charge of approximately $20.1 million
during the third quarter of 2004, but will result in an annual reduction in interest expense of about $27.6 million per year. See
discussion below concerning EPPICS conversions for further information regarding the issuance of common stock.
Issuance of Debt Securities
On November 8, 2004, we issued an aggregate $700.0 million principal amount of 6.25% senior notes due January 15, 2013
through a registered underwritten public offering. Proceeds from the sale were used to redeem our outstanding $700.0 million
of 8.50% Notes due 2006, which is discussed below.
Debt Reduction
For the year ended December 31, 2004, we retired an aggregate principal amount of $1,362.0 million of debt, including
$148.0 million of EPPICS that were converted to our common stock.
On January 15, 2004, we repaid at maturity the remaining outstanding $81.0 million of our 7.45% Debentures.
On January 15, 2004, we redeemed at 101% the remaining outstanding $12.3 million of our Hawaii Special Purpose Revenue
Bonds, Series 1993A and Series 1993B.
On May 17, 2004, we repaid at maturity the remaining outstanding $6.0 million of Electric Lightwave, LLC’s 6.05% Notes.
These Notes had been guaranteed by Citizens.
On July 15, 2004, we renegotiated and prepaid with $5.0 million of cash the entire remaining $5.5 million ELI capital lease
obligation to a third party.
On July 30, 2004, we purchased $300.0 million of the 6.75% notes that were a component of our equity units at 105.075% of par,
plus accrued interest, at a premium of approximately $15.2 million.
During August and September 2004, we repurchased through a series of transactions an additional $108.2 million of the 6.75%
notes due 2006 at a weighted average price of 104.486% of par, plus accrued interest, at a premium of approximately $4.9
million.
On November 12, 2004, we called for redemption on December 13, 2004 the entire $700.0 million of our 8.50% notes due
2006 at a price of 107.182% of the principal amount called, plus accrued interest, at a premium of approximately $50.3
million.
We may from time to time repurchase our debt in the open market, through tender offers or privately negotiated transactions.
Interest Rate Management
In order to manage our interest expense, we have entered into interest swap agreements. Under the terms of the agreements,
we make semi-annual, floating rate interest payments based on six month LIBOR and receive a fixed rate on the notional
amount. The underlying variable rate on these swaps is set either in advance, in arrears or based on each period’s daily
average six-month LIBOR.
The notional amounts of fixed-rate indebtedness hedged as of December 31, 2004 and December 31, 2003 were $300.0
million and $400.0 million, respectively. Such contracts require us to pay variable rates of interest (average pay rate of
approximately 6.12% as of December 31, 2004) and receive fixed rates of interest (average receive rate of 8.44% as of
December 31, 2004). All swaps are accounted for under SFAS No. 133 as fair value hedges. For the year ended December
31, 2004, the interest savings resulting from these interest rate swaps totaled approximately $9.4 million.