Frontier Communications 2008 Annual Report Download - page 76

Download and view the complete annual report

Please find page 76 of the 2008 Frontier Communications annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 99

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99

As of January 16, 2008, we no longer have any derivative instruments. The following disclosure is
necessary to understand our historical financial statements.
The interest rate swap contracts are reflected at fair value in our consolidated balance sheets and the
related portion of fixed-rate debt being hedged is reflected at an amount equal to the sum of its book value and
an amount representing the change in fair value of the debt obligations attributable to the interest rate risk being
hedged. Changes in the fair value of interest rate swap contracts, and the offsetting changes in the adjusted
carrying value of the related portion of the fixed-rate debt being hedged, are recognized in the consolidated
statements of operations in interest expense. The notional amounts of interest rate swap contracts hedging
fixed-rate indebtedness as of December 31, 2007 was $400.0 million. Such contracts required us to pay variable
rates of interest (average pay rates of approximately 8.54% as of December 31, 2007) and receive fixed rates of
interest (average receive rates of 8.50% as of December 31, 2007). The fair value of these derivatives is
reflected in other assets as of December 31, 2007 in the amount of $7.9 million. The related underlying debt
was increased in 2007 by a like amount. For the years ended December 31, 2007 and 2006, the interest expense
resulting from these interest rate swaps totaled approximately $2.4 million and $4.2 million, respectively.
(13) Investment Income:
The components of investment income for the years ended December 31, 2008, 2007 and 2006 are as
follows:
($ in thousands) 2008 2007 2006
Interest and dividend income . . ................................... $10,928 $32,986 $22,172
Gain from Rural Telephone Bank dissolution ..................... — — 61,428
Equity earnings/minority interest in joint ventures, net ............. 3,576 2,795 (4,164)
Total investment income ......................................... $14,504 $35,781 $79,436
(14) Other Income (Loss), net:
The components of other income (loss), net for the years ended December 31, 2008, 2007 and 2006 are as
follows:
($ in thousands) 2008 2007 2006
Bridge loan fee.................................................. $ — $ (4,069) $ —
Premium on debt repurchases . ................................... (6,290) (18,217) —
Legal fees and settlement costs................................... (1,037) — (1,000)
Gain on expiration/settlement of customer advances, net . . . ........ 4,520 2,031 3,539
Loss on exchange of debt........................................ — — (2,433)
Gain on forward rate agreements ................................. — — 430
Other, net . . ..................................................... (2,363) 2,422 2,471
Total other income (loss), net . ................................... $(5,170) $(17,833) $ 3,007
During the first quarter of 2008, we retired certain debt and recognized a pre-tax loss of $6.3 million on
the early extinguishment of debt at a premium, mainly for the 9.25% Senior Notes due 2011. During the first
quarter of 2007, we incurred $4.1 million of fees associated with a bridge loan facility. In 2007, we retired
certain debt and recognized a pre-tax loss of $18.2 million on the early extinguishment of debt at a premium,
mainly for the 7.625% Senior Notes due 2008. During 2008, 2007 and 2006, we recognized income of $4.5
million, $2.0 million and $3.5 million, respectively, in connection with certain retained liabilities, that have
terminated, associated with customer advances for construction from our disposed water properties. During
2008 and 2006, we recorded legal fees and settlement costs in connection with the Bangor, Maine legal matter
of $1.0 million in each year. In connection with our exchange of debt during the first quarter of 2006, we
recognized a non-cash, pre-tax loss of $2.4 million. 2006 also includes a gain for the changes in fair value of
our forward rate agreements of $0.4 million.
F-25
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements