Frontier Communications 2012 Annual Report Download - page 88

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) 2012 2011 2010
Income taxes charged to the consolidated statement of
operations:
Current:
Federal. . ............................................ $ (3,824) $(13,320) $ 18,302
State ................................................ (1,039) 14,252 10,260
Total current . ................................... (4,863) 932 28,562
Deferred:
Federal. . ............................................ 53,642 77,750 82,080
State ................................................ 26,859 9,661 4,357
Total deferred................................... 80,501 87,411 86,437
Total income taxes charged to the consolidated statement of
operations .................................................. 75,638 88,343 114,999
Income taxes charged (credited) to shareholders’ equity of
Frontier:
Current benefit arising from stock options exercised and
restricted stock ........................................... 2,937 — —
Deferred income taxes (benefits) arising from the recognition
of additional pension/OPEB liability....................... (58,551) (97,409) 17,501
Total income taxes charged (credited) to shareholders’ equity of
Frontier .................................................... (55,614) (97,409) 17,501
Total income taxes............................................ $ 20,024 $ (9,066) $132,500
In 2011, we received refunds of $53.9 million generated in part by the 2009 retroactive change in
accounting method for repairs and maintenance costs related to tax years 2008 and prior.
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 $13.6 million as of December 31, 2012 including interest of $2.1 million. The amount of
our uncertain tax positions whose statute of limitations are expected to expire during the next twelve months
and which would affect our effective tax rate is $5.2 million as of December 31, 2012.
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, 2011, a net
reduction in interest in the amount of $2.1 million. We are subject to income tax examinations generally for the
years 2010 forward for federal and 2005 forward for state filing jurisdictions. We also maintain uncertain tax
positions in various state jurisdictions.
The following table sets forth the changes in the Company’s balance of unrecognized tax benefits for the
years ended December 31, 2012 and 2011:
($ in thousands) 2012 2011
Unrecognized tax benefits—beginning of year ............................. $ 33,928 $ 49,180
Gross increases—current year tax positions ................................ 3,381 8,200
Gross decreases—expired statute of limitations. . . . ......................... (25,822) (23,452)
Unrecognized tax benefits—end of year . .................................. $ 11,487 $ 33,928
F-27
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements