Frontier Communications 2014 Annual Report Download - page 41

INVESTMENT AND OTHER INCOME, NET / LOSSES ON EARLY EXTINQUISHMENT OF DEBT /
INTEREST EXPENSE / INCOME TAX EXPENSE
($ in thousands) Amount
$ Increase
(Decrease)
% Increase
(Decrease) Amount
$ Increase
(Decrease)
% Increase
(Decrease) Amount
2014 2013 2012
Investment and other income, net . . . $ 38,996 $ 29,819 325% $ 9,177 $(10,955) (54)% $ 20,132
Losses on early extinguishment of
debt . . . .......................... $ — $(159,780) (100)% $159,780 $ 69,417 77% $ 90,363
Interest expense.................... $695,500 $ 28,102 4% $667,398 $(20,587) (3)% $687,985
Income tax expense . . .............. $ 30,544 $ (16,698) (35)% $ 47,242 $(28,396) (38)% $ 75,638
Investment and Other Income, Net
Investment and other income, net for 2014 increased $30 million primarily due to a $25 million
gain on the sale of our minority interest in a wireless partnership and a $12 million gain on the sale of
an intangible asset not part of our operations.
Investment and other income, net for 2013 decreased $11 million primarily due to an investment
gain of $10 million in 2012.
Losses on Early Extinguishment of Debt
During 2013, we recognized a loss of $160 million on the early extinguishment of debt in
connection with various debt tender offers, privately negotiated transactions and open market
repurchases that resulted in the retirement of $1,002 million in senior notes.
Similarly, in 2012 we recognized a loss of $90 million on the early extinguishment of $713 million
in senior notes.
Interest expense
Interest expense for 2014 increased $28 million, or 4%, primarily due to interest on the $1.9 billion
debt financing completed in September and October 2014, as well as $23 million in commitment fees
for the Bridge Facility (as defined below) related to the Connecticut Acquisition, partially offset by the
lower average debt levels during the first nine months of the year resulting from the refinancing
activities and early retirements in 2013. Our composite average borrowing rate as of December 31,
2014 was 7.62%.
Interest expense for 2013 decreased $21 million, or 3%, primarily due to lower average debt levels
resulting from the debt refinancing activities and early retirements, partially offset by the registered debt
offering of $750 million of senior unsecured notes due 2024. Our composite average borrowing rate as
of December 31, 2013 was 7.95%.
Income tax expense
Income tax expense for 2014 decreased $17 million, or 35%, and our effective tax rate was 18.7%
as compared with 29.0% for 2013 and 33.0% for 2012. The decrease was primarily due to a change in
deferred taxes arising from the inclusion of the Connecticut operations in the state unitary filings.
Income tax expense for 2013 decreased $28 million, or 38%, primarily due to lower pretax income
in 2013. Income taxes for 2013 reflect the impact of a $7 million net benefit resulting from the
adjustment of deferred tax balances, a $5 million benefit from federal research and development
credits and a $2 million benefit from the net reversal of reserves for uncertain tax positions, partially
offset by the impact of an expense of $5 million resulting from the settlement of the 2010 IRS audit, as
well as an expense of $3 million resulting from non-deductible transaction costs.
We paid $70 million, $94 million and $5 million in net cash taxes in 2014, 2013 and 2012,
respectively. Our 2014 cash taxes paid reflected the continued impact of bonus depreciation in
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES