Frontier Communications 2007 Annual Report Download - page 33

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Purchase Price Allocation – Commonwealth
The allocation of the approximate $1.1 billion paid to the “fair market value” of the assets and liabilities of
Commonwealth is a critical estimate. We have adjusted our preliminary estimate for the fair values assigned to
plant, customer list, and goodwill to the final values. Additionally, the estimated expected life of a customer
(used to amortize the customer list) is a critical estimate.
New Accounting Pronouncements
Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued FASB Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income
Taxes.” Among other things, FIN No. 48 requires applying a “more likely than not” threshold to the recognition
and derecognition of uncertain tax positions either taken or expected to be taken in the Company’s income tax
returns. We adopted the provisions of FIN No. 48 in the first quarter of 2007. The total amount of our gross FIN
No. 48 tax liability for tax positions that may not be sustained under a “more likely than not” threshold as of the
date of adoption was $44.7 million (including $10.4 million acquired from CTE) and amounts to $66.0 million as
of December 31, 2007. This amount includes an accrual for interest from the date the tax positions were taken in
the amount of $6.2 million as of December 31, 2007. These balances include amounts of $9.0 million and $1.4
million for total FIN No. 48 tax liabilities and accrued interest, respectively, resulting from positions taken by
Commonwealth which we acquired in March 2007. An increase of $14.8 million in the balance since the date of
adoption is attributable to a change made to the estimated useful life of an intangible asset for income tax
purposes. This tax position is temporary in nature and, therefore, will not impact the Company’s results of
operations when ultimately settled in the future. The amount of our total FIN No. 48 tax liabilities reflected
above that would positively impact the calculation of our effective income tax rate, if our tax positions are
sustained, is $21.1 million as of December 31, 2007.
The Company’s policy regarding the classification of interest and penalties is to include these amounts as a
component of income tax expense. This treatment of interest and penalties is consistent with prior periods. We have
recognized in our consolidated statement of operations for the year ended December 31, 2007, additional interest in
the amount of $1.2 million. We are subject to income tax examinations generally for the years 2003 forward for
both our Federal and state filing jurisdictions. We maintain uncertain tax positions in various state jurisdictions. It is
reasonably possible that amounts related to previous asset dispositions and tax credits will change within the next 12
months, due to the expiration of the relevant statutes of limitations. This could favorably impact our results of
operations by up to $7.0 million and reduce acquired goodwill balances by up to $3.0 million. Amounts related to
all other positions that may change within the next twelve months are not material.
The following new accounting standards were adopted by the Company without any financial statement
impact. All of these standards are more fully described in Note 2 to the consolidated financial statements.
• How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented
in the Income Statement (EITF No. 06-3)
• Accounting for Purchases of Life Insurance (EITF No. 06-5)
The following new accounting standards that will be adopted by the Company in 2008 and 2009 are
currently being evaluated by the Company, but we do not expect the adoption to have a material impact on our
financial position, results of operations or cash flows.
• Accounting for Endorsement Split-Dollar Life Insurance Arrangements (EITF No. 06-4)
• Fair Value Measurements (SFAS No. 157), as amended
• Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159)
• Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements (EITF No. 06-10)
• Business Combinations (SFAS No. 141R)
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