FairPoint Communications 2003 Annual Report Download - page 48






 


Deferred tax assets:
Federal and state tax loss carryforwards $94,223 91,527
Employee benefits 632 784
Restructure charges and exit liabilities 2,873 1,917
Allowance for doubtful accounts 451 375
Alternative minimum tax and other state credits 2,861 2,209
Total gross deferred tax assets 101,040 96,812
Valuation allowance (71,733)(64,392)
Net deferred tax assets 29,307 32,420
Deferred tax liabilities:
Property, plant, and equipment, principally due to depreciation
differences 16,716 17,244
Goodwill, due to amortization differences 8,906 10,654
Basis in investments 3,685 4,522
Total gross deferred tax liabilities 29,307 32,420
Net deferred tax assets $ — —
The valuation allowance for deferred tax assets as of December 31, 2002 and 2003 was $71.7 million and $64.4 million, respectively.
The change in the valuation allowance was $(4.9) million and $(7.3) million of which $1.9 million and $0.0 million was allocated to
continuing operations and
70
$(6.8) million and $(7.3) million to discontinued operations for the years ended December 31, 2002 and 2003, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the
Company will need to generate future taxable income of $176.4 million prior to the expiration of the net operating loss carryforwards in 2022.
Taxable income (loss) for the years ended December 31, 2002 and 2003 was $(11.2) million and $7.6 million, respectively. Based upon the
level of projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31,
2003. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable
income during the carry forward period are reduced.
At December 31, 2003, federal and state net operating loss carryforwards of $250.8 million expire in 2019 to 2022. At December 31,
2003, the Company has alternative minimum tax credits of $1.7 million which may be carried forward indefinitely.

The following summarizes the authorized share capital of the Company:
—authorized 236,200,000 voting common shares at a par value of $0.01 per share. Class A common shares
carry one vote per share.
—authorized 150,000,000 nonvoting, convertible common shares at a par value of $0.01 per share.
—authorized 13,800,000 nonvoting, convertible common shares at a par value of $0.01 per share. The
Class C common shares are automatically convertible into Class A common shares upon either the completion of an initial public
offering of at least $150 million of the Company's Class A common stock or the occurrence of certain conversion events, as defined in
the articles of incorporation. The conversion rate for the Class C common shares to Class A common shares is one-for-one.
—authorized 1,000,000 nonvoting, nonconvertible, redeemable preferred shares at a par value of $0.01 per
share (see note 7).