Frontier Communications 2011 Annual Report Download - page 43

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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
40
the contribution of real property with a fair value of $58.1 million. We made cash contributions of $13.1 million in 2010. No
contributions were made to our pension plan during 2009.
Income Taxes
Our effective tax rate in 2011 decreased to 35.9% from 42.5% in 2010. The higher rate in 2010 was primarily related to the
write-off of certain deferred tax assets in 2010 of approximately $11.3 million related to Transaction costs which were not tax
deductible. Prior to the closing of the Transaction, these costs were deemed to be tax deductible as the Transaction had not yet
been successfully completed. These costs were incurred to facilitate the Transaction and once the Transaction closed, these costs
had to be capitalized for tax purposes.
Income taxes for 2011 include the reduction of deferred tax balances based on the application of enacted state tax statutes for
$6.8 million and the net reversal of a reserve for uncertain tax positions for $8.6 million, partially offset by the impact of a
$10.8 million charge resulting from the enactment on May 25, 2011 of the Michigan Corporate Income Tax that eliminated
certain future tax deductions.
Our effective tax rate in 2009 approximated the statutory rate.
Contingencies
We currently do not have any contingencies in excess of $5.0 million recorded on our books.
Purchase Price Allocation - The Transaction
The allocation of the approximate $5.4 billion in total consideration to the “fair market value” of the assets and liabilities of
the Acquired Business is a critical estimate. The estimates of the fair values assigned to plant, customer list and goodwill, are
more fully described in Notes 3, 4 and 6 of the Notes to Consolidated Financial Statements. Additionally, the estimated
expected life of a customer (used to amortize the customer list) is a critical estimate.
New Accounting Pronouncements
There were no new accounting standards that were adopted by the Company in 2011, or that would be adopted in future
years, with any material financial statement impact.
Fair Value Measurements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04
(ASU 2011-04), “Fair Value Measurements: Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs” (Accounting Standards Codification (ASC) Topic 820). ASU 2011-04 changes the
wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information
about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the
disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance
is to be applied prospectively, and is effective for interim and annual periods beginning after December 15, 2011. We do not
expect the adoption of ASU 2011-04 to have a material impact on our financial position, results of operations or cash flows.
Presentation of Comprehensive Income
In June 2011, the FASB issued ASU No. 2011-05 (ASU 2011-05), “Comprehensive Income: Presentation of Comprehensive
Income,” (ASC Topic 220). ASU 2011-05 eliminates the option to report other comprehensive income and its components in
the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in
either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new
guidance is to be applied retrospectively, and is effective for interim and annual periods beginning after December 15, 2011.
In December 2011, the FASB issued ASU No. 2011-12 that defers the effective date for amendments to the presentation of
reclassifications of items out of accumulated other comprehensive income in ASU 2011-05. We do not expect the adoption
of ASU 2011-05 to have a material impact on our financial position, results of operations or cash flows.
Testing Goodwill for Impairment
In September 2011, the FASB issued ASU No. 2011-08 (ASU 2011-08), “Intangibles-Goodwill and Other (ASC Topic 350):
Testing Goodwill for Impairment.” ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is
more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying
amount. After assessing qualitative factors, if an entity determines that it is not more likely than not that the fair value of the
reporting unit is less than its carrying amount, no further testing is necessary. If an entity determines that it is more likely than