Frontier Communications 2010 Annual Report Download - page 86

The provision (benefit) for Federal and state income taxes, as well as the taxes charged or credited to
shareholders’ equity of Frontier, includes amounts both payable currently and deferred for payment in future
periods as indicated below:
($ in thousands) 2010 2009 2008
Income taxes charged to the consolidated statement of
operations:
Current:
Federal.............................................. $ 18,302 $11,618 $ 68,114
State ................................................ 10,260 (2,630) 4,415
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,562 8,988 72,529
Deferred:
Federal.............................................. 82,080 49,916 32,984
State ................................................ 4,357 11,024 983
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,437 60,940 33,967
Total income taxes charged to the consolidated statement of
operations (a)............................................... 114,999 69,928 106,496
Income taxes charged (credited) to shareholders’ equity of
Frontier:
Current benefit arising from stock options exercised and
restricted stock......................................... — 881 (4,877)
Deferred income taxes (benefits) arising from the recognition of
additional pension/OPEB liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,501 (4,353) (88,410)
Total income taxes charged (credited) to shareholders’ equity of
Frontier (b)................................................. 17,501 (3,472) (93,287)
Total income taxes: (a) plus (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $132,500 $66,456 $ 13,209
During 2009, we retrospectively changed our method of accounting for repairs and maintenance costs for
tax return purposes. The effect of this change was a decrease of our current tax expense and an offsetting
increase of our deferred tax expense of approximately $35.8 million in our 2009 income tax provision.
Additionally, in part due to the above noted accounting change, refunds of approximately $56.2 million were
applied for in the Company’s 2008 tax returns and received in 2010. Refunds are recorded on our balance sheet
at December 31, 2009 in current assets within Income taxes and other current assets. We recorded
approximately $8.2 million (net) related to uncertain tax positions in 2009.
U.S. GAAP 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. The total
amount of our gross tax liability for tax positions that may not be sustained under a “more likely than not”
threshold amounts to $54.9 million as of December 31, 2010 including interest of $5.7 million. The amount of
our uncertain tax positions expected to reverse during the next twelve months and which would affect our
effective tax rate is $23.2 million as of December 31, 2010.
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, 2010,
additional interest in the amount of $2.3 million. We are subject to income tax examinations generally for the
years 2006 forward for Federal and 2005 for state filing jurisdictions. We also maintain uncertain tax positions
in various state jurisdictions.
F-27
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements