Frontier Communications 2007 Annual Report Download - page 41

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Investment income for the year ended December 31, 2006 increased $67.2 million, as compared with the
prior year, primarily due to an increase of $6.4 million in income from higher cash balances during the year
arising from the $64.6 million of cash received from the liquidation and dissolution of the RTB (and gain
recognized of $61.4 million), the $255.3 million in cash received from the sale of ELI and the postponement of
our stock repurchase and debt repurchase programs during the second half of 2006 in connection with our
acquisition of Commonwealth.
Other Income (Loss), net
Other income (loss), net for the year ended December 31, 2007 decreased $20.8 million to ($17.8) million as
compared to the prior year. Excluding the other income due to the CTE and GVN acquisitions of $5.0 million,
other income (loss), net for the year ended December 31, 2007 decreased $25.8 million to ($22.8) million as
compared to prior year, primarily due to the premium paid of $18.2 million on the early retirement of debt during
2007 and a bridge loan fee of $4.1 million.
Other income (loss), net for the year ended December 31, 2006 increased $2.3 million, as compared to the
prior year. Other income (loss), net for 2006 consists primarily of insurance proceeds of $4.2 million, a loss of
$2.4 million on the exchange of debt, an expense of $1.0 million for legal matters and gains recognized on the
extinguishment of approximately $3.5 million of retained liabilities of our disposed water properties.
Interest Expense
Interest expense for the year ended December 31, 2007 increased $44.5 million, or 13%, to $381.0 million
as compared with the prior year, primarily due to $637.6 million of higher average debt resulting from financing
the Commonwealth acquisition. Our composite average borrowing rate for the year ended December 31, 2007, as
compared with the prior year was 18 basis points lower, decreasing from 8.12% to 7.94%.
Interest expense for the year ended December 31, 2006 decreased $2.3 million, or 1%, as compared with the
prior year, primarily due to slightly lower average debt levels, partially offset by higher short term interest rates
that we paid on our swap agreements ($550.0 million in principal amount was swapped to floating rate at
December 31, 2006). Our composite average borrowing rate for the year ended December 31, 2006, as compared
with the prior year was 18 basis points higher, increasing from 7.94% to 8.12%.
Our average debt outstanding was $4,834.5 million, $4,196.9 million and $4,260.8 million for the years
ended December 31, 2007, 2006 and 2005.
Income Tax Expense
Income tax expense for the year ended December 31, 2007 decreased $35.5 million, or 26%, as compared
with the prior year, primarily due to changes in taxable income. The overall effective tax rate for 2007 was
37.4% as compared with an effective tax rate of 34.9% for 2006. The Company’s overall effective tax rate
increased in 2007 mainly due to changes in permanent difference items and tax contingencies.
We paid $54.4 million in cash taxes during 2007, an increase of $49.0 million over 2006, reflecting the
utilization of our tax loss carryforwards in prior years. We expect to pay approximately $130.0 million to $140.0
million in 2008. Our 2008 cash tax estimate does not reflect the impact of the “Economic Stimulus Act of 2008,”
which we are currently evaluating.
Income taxes for the year ended December 31, 2006 increased $61.2 million, as compared with the prior
year, primarily due to changes in taxable income. The effective tax rate for 2006 was 34.9%, as compared with
an effective tax rate of 28.6% for 2005. We utilized a substantial amount of tax loss carryforwards as a result of
the sale of ELI and receipt of RTB proceeds in 2006.
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