Frontier Communications 2013 Annual Report Download - page 52

Interest expense
Interest expense for 2013 decreased $20.6 million, or 3%, to $667.4 million, as compared with 2012,
primarily due to lower average debt levels resulting from the debt refinancing activities and early retirements of
$1,563.0 million in debt and higher capitalized interest in 2013, partially offset by the registered debt offering
of $750.0 million of senior unsecured notes due 2024. Our composite average borrowing rate as of December
31, 2013 was 7.95%.
Interest expense for 2012 increased $22.8 million, or 3%, to $688.0 million, as compared with 2011,
primarily due to issuing $1,350 million of senior unsecured notes, resulting in higher average debt levels. This
increase in debt was partially offset by debt repayments of $757.0 million and lower capitalized interest in
2012. Our composite average borrowing rate as of December 31, 2012 and 2011 was 7.85% and 7.92%,
respectively.
Our average debt outstanding was $8,289.9 million, $8,600.6 million and $8,301.2 million for 2013, 2012
and 2011, respectively. Our debt levels have remained relatively flat from 2011 levels primarily due to the $1.4
billion in registered debt offerings in 2012, offset by $1.6 billion in debt refinancing and retirements in 2013, as
discussed above.
Income tax expense
Income tax expense for 2013 decreased $28.4 million, or 38%, to $47.2 million, as compared with 2012,
primarily due to lower pretax income in 2013, resulting from the $69.4 million in additional losses on the early
extinguishment of debt in 2013 as compared to 2012 and the $44.2 million in non-cash pension settlement costs
recognized during 2013.
Income taxes for 2013 include the impact of a $6.5 million net benefit resulting from the adjustment of
deferred tax balances, a $5.2 million benefit from federal research and development credits and a $1.8 million
benefit from the net reversal of reserves for uncertain tax positions, partially offset by the impact of a charge of
$5.2 million resulting from the settlement of the 2010 IRS audit, and a charge of $3.3 million resulting from
non-deductible transaction costs.
The effective tax rate for 2013 was 29.0% as compared with 33.0% for 2012 and 35.9% for 2011.
Income tax expense for 2012 decreased $12.7 million, or 14%, to $75.6 million, as compared with 2011.
The variance is primarily due to lower pretax income in 2012, along with the impact of the reversal of
uncertain tax positions for $12.3 million, partially offset by a net increase in deferred tax balances.
The amount of our uncertain tax positions for which the statutes of limitations are expected to expire
during the next twelve months and which would affect our effective tax rate is $2.4 million as of December 31,
2013.
We paid $94.2 million and $4.7 million in net cash taxes in 2013 and 2012, respectively. Our 2013 cash
taxes paid reflects the continued impact of bonus depreciation in accordance with the American Taxpayer
Relief Act of 2012. We received refunds (net of cash taxes paid) of $33.1 million in cash taxes during 2011. In
2011, we received refunds of $53.9 million generated in part by the 2009 retroactive change in accounting
method for repairs and maintenance costs related to tax years 2008 and prior. Absent any legislative changes in
2014, we expect that our cash tax payments will be approximately $130 million to $160 million for 2014 for
our current business operations and our estimated pre-close integration expenditures.
Net income attributable to common shareholders of Frontier
Net income attributable to common shareholders of Frontier for 2013 was $112.8 million, or $0.11 per
share, as compared to $136.6 million, or $0.14 per share, in 2012 and $149.6 million, or $0.15 per share, in
2011.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES