Frontier Communications 2013 Annual Report Download - page 21

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If we complete an acquisition, investment or other strategic transaction, we may require additional
financing that could result in an increase in the number of our outstanding shares or the aggregate amount of
our debt. The number of shares of our common stock or the aggregate principal amount of our debt that we
may issue may be significant. A strategic transaction may result in a change in control of our company or
otherwise materially and adversely affect our business.
Risks Related to Liquidity, Financial Resources and Capitalization
Volatility in asset values related to Frontier’s pension plan and/or changes in pension plan assumptions
may require us to make additional unanticipated contributions to fund pension plan liabilities.
Frontier’s pension plan assets have decreased from $1,253.6 million at December 31, 2012 to $1,216.5
million at December 31, 2013, a decrease of $37.1 million, or 3%. This decrease is a result of benefit payments
of $218.8 million, primarily lump sum settlements of $164.6 million, offset by positive investment returns of
$119.4 million, cash contributions of $38.9 million and real property contributions of $23.4 million. The
Company expects to make contributions of approximately $100 million in 2014. Volatility in our asset values
or returns may require us to make additional contributions in future years.
The Company will, upon consummation of the AT&T Transaction, maintain pension plans that assume the
acquired business’s pension plan liabilities for active employees. AT&T will transfer assets to the pension plans
pursuant to applicable law and the terms of the stock purchase agreement for the AT&T Transaction. The
aggregate asset transfer related to the tax-qualified pension plans will be equal to the projected benefit
obligations assumed as of the closing date of the AT&T Transaction. Following the AT&T Transaction, the
Company will be responsible for making any required contributions to the new pension plans to fund liabilities
of the plans, and the ongoing pension expenses of the acquired business may require the Company to make
cash contributions in respect of the acquired business’s pension plan liabilities.
Substantial debt and debt service obligations may adversely affect us.
We have a significant amount of indebtedness, which amounted to $8.1 billion at December 31, 2013. We
have access to a $750.0 million revolving credit facility and may also obtain additional long-term debt and
working capital lines of credit to meet future financing needs, subject to certain restrictions under the terms of
our existing indebtedness. In addition, we entered into the Bridge Loan Agreement on January 29, 2014 and
expect to incur $1.9 billion of additional indebtedness in connection with the closing of the AT&T Transaction,
either pursuant to an offering of debt securities or under the Bridge Facility. Despite the substantial
indebtedness that we have, we are not prohibited from incurring additional indebtedness. If the AT&T
Transaction is completed and we were to incur additional indebtedness, the risks that result from our substantial
indebtedness could be magnified.
The potential significant negative consequences on our financial condition and results of operations that
could result from our substantial debt include:
•limitations on our ability to obtain additional debt or equity financing;
•instances in which we are unable to meet the covenants contained in our debt agreements or to generate
cash sufficient to make required debt payments, which circumstances have the potential of accelerating
the maturity of some or all of our outstanding indebtedness;
•the allocation of a substantial portion of our cash flow from operations to service our debt, thus reducing
the amount of our cash flow available for other purposes, including operating costs, capital expenditures
and dividends that would otherwise improve our competitive position, results of operations or stock
price;
•requiring us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable
terms, to meet payment obligations;
•compromising our flexibility to plan for, or react to, competitive challenges in our business and the
communications industry; and
20
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES