Frontier Communications 2008 Annual Report Download - page 41

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income for 2007 decreased $44.1 million, or 55%, as compared to 2006, primarily due to the $64.6 million in
proceeds received in 2006 from the RTB liquidation and dissolution, partially offset by an increase of $10.8
million in income from short-term investments of cash and lower minority interest in joint ventures of $2.3
million.
We borrowed $550.0 million in December 2006 in anticipation of the Commonwealth acquisition in 2007.
Our average cash balances were $177.5 million, $594.2 million and $429.5 million for 2008, 2007 and 2006,
respectively.
Other Income (Loss), net
Other income (loss), net for 2008 improved $12.7 million, or 71%, to $(5.2) million as compared to 2007.
Other income (loss), net improved in 2008 primarily due to a reduction in the loss on retirement of debt of
$11.9 million and the $4.1 million expense of a bridge loan fee recorded during the first quarter of 2007.
Other income (loss), net for 2007 decreased $20.8 million to $(17.8) million as compared to 2006.
Excluding the other income attributable to the CTE and GVN acquisitions of $5.0 million, other income (loss),
net for 2007 decreased $25.8 million to $(22.8) million as compared to 2006, 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.
Interest Expense
Interest expense for 2008 decreased $18.1 million, or 5%, to $362.6 million as compared to 2007,
primarily due to the amortization of the deferred gain associated with the termination of our interest rate swap
agreements and retirement of related debt during the first quarter of 2008, along with slightly lower average
debt levels and average interest rates. Our composite average borrowing rate as of December 31, 2008, as
compared to 2007 was 40 basis points lower, decreasing from 7.94% to 7.54%.
Interest expense for 2007 increased $44.5 million, or 13%, to $381.0 million as compared to 2006,
primarily due to $637.6 million of higher average debt in 2007 resulting from financing the CTE acquisition.
Our composite average borrowing rate as of December 31, 2007, as compared with our composite average
borrowing rate as of December 31, 2006 was 18 basis points lower, decreasing from 8.12% to 7.94%.
Our average debt outstanding was $4,753.0 million, $4,834.5 million and $4,196.9 million for 2008, 2007
and 2006, respectively.
Income Tax Expense
Income tax expense for 2008 decreased $21.5 million, or 17%, as compared to 2007, primarily due to
lower taxable income and the reduction in income tax expense of $7.5 million recorded in the second quarter of
2008 that resulted from the expiration of certain statute of limitations on April 15, 2008, as discussed below.
The effective tax rate for 2008 was 36.8% as compared with 37.4% for 2007. The Company’s effective tax
rate decreased in 2008 mainly due to the impact of the favorable tax reserve adjustment recorded in the second
quarter of 2008.
We paid $78.9 million in cash taxes during 2008, an increase of $24.5 million over 2007, reflecting the
utilization of our tax loss carryforwards in prior years. We expect to pay approximately $90.0 million to $110.0
million in 2009. Our 2009 cash tax estimate reflects the anticipated favorable impact of bonus depreciation that
is part of the economic stimulus package signed into law by President Obama.
As a result of the expiration of certain statute of limitations on April 15, 2008, the liabilities on our books
as of December 31, 2007 related to uncertain tax positions recorded under FASB Interpretation No. (FIN) 48
were reduced by $16.2 million in the second quarter of 2008. This reduction lowered income tax expense by
$7.5 million, goodwill by $3.0 million and deferred income tax assets by $5.7 million during the second quarter
of 2008.
Excluding the income tax expense attributable to the CTE and GVN acquisitions of $27.0 million, income
tax expense for 2007 decreased $35.5 million, or 26%, as compared to 2006, primarily due to changes in
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES