Frontier Communications 2013 Annual Report Download - page 53

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk in the normal course of our business operations due to ongoing investing
and funding activities, including those associated with our pension plan assets. Market risk refers to the
potential change in fair value of a financial instrument as a result of fluctuations in interest rates and equity
prices. We do not hold or issue derivative instruments, derivative commodity instruments or other financial
instruments for trading purposes. As a result, we do not undertake any specific actions to cover our exposure to
market risks, and we are not party to any market risk management agreements other than in the normal course
of business. Our primary market risk exposures from interest rate risk and equity price risk are as follows:
Interest Rate Exposure
Our exposure to market risk for changes in interest rates relates primarily to the interest-bearing portion of
our pension investment portfolio and related obligations, and floating rate indebtedness. As of December 31,
2013, 94% of our long-term debt had fixed interest rates with minimal exposure to interest rate changes. We
had no interest rate swap agreements related to our fixed rate debt in effect at December 31, 2013 and 2012.
Our objectives in managing our interest rate risk are to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, all but $460.0
million of our outstanding borrowings at December 31, 2013 have fixed interest rates. In addition, our undrawn
$750.0 million revolving credit facility has interest rates that float with the LIBO Rate, as defined.
Consequently, we have limited material future earnings or cash flow exposures from changes in interest rates
on our long-term debt. An adverse change in interest rates would increase the amount that we pay on our
variable rate obligations and could result in fluctuations in the fair value of our fixed rate obligations. Based
upon our overall interest rate exposure at December 31, 2013, a near-term change in interest rates would not
materially affect our consolidated financial position, results of operations or cash flows.
At December 31, 2013, the fair value of our long-term debt was estimated to be approximately $8.2
billion, based on our overall weighted average borrowing rate of 7.95% and our overall weighted average
maturity of approximately nine years. As of December 31, 2013, there has been no material change in the
weighted average maturity applicable to our obligations since December 31, 2012.
Equity Price Exposure
Our exposure to market risks for changes in equity security prices as of December 31, 2013 is limited to
our pension plan assets. We have no other security investments of any material amount.
The Company’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.
We expect that we will make contributions to our pension plan of approximately $100 million in 2014.
Item 8. Financial Statements and Supplementary Data
The following documents are filed as part of this Report:
1. Financial Statements—See Index on page F-1.
2. Supplementary Data—Quarterly Financial Data is included in the Financial Statements (see 1. above).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
52
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES