FairPoint Communications 2006 Annual Report Download - page 86
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Total income tax benefit (expense) from continuing operations was different than that computed by applying U.S. Federal income tax rates to losses from
continuing operations before income taxes for the years ended December 31, 2006, 2005, and 2004. The reasons for the differences are presented below (in
thousands):
Computed “expected” Federal tax benefit (expense) from continuing
operations $ (17,632) $19,090 $8,104
State income tax benefit (expense), net of Federal income tax expense (2,251)167 (358)
Dividends and loss on redemption on preferred stock — (4,291) (6,862)
Dividends received deduction 605 153 103
Rate change —1,585 —
Change in valuation allowance (Federal and state) —66,011 (1,858)
Other (580)381 355
Total income tax benefit (expense) from continuing operations $(19,858)$83,096 $(516)
The Company had a valuation allowance for deferred tax assets of $66.0 million as of December 31, 2004. These deferred tax assets primarily related to
the Company NOL carryforwards. In assessing the realizability of the deferred tax assets, management considered whether it was more likely than not that
some portion or all of the deferred tax assets would not be realized. The ultimate realization of the deferred tax assets was dependent upon the generation of
future taxable income during periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax
liabilities, future taxable income and tax planning strategies in making this assessment, as well as all positive and negative evidence that would affect the
recoverability of deferred tax assets. As a result of the offering (as described in Note 2), the Company had reduced its aggregate long term debt with a
corresponding significant reduction in its annual interest expense. When considered together with the Company’s history of producing positive operating
results and other evidence affecting recoverability of deferred tax assets, the Company expected that future taxable income would more likely than not be
sufficient to recover net deferred tax assets. Therefore, the valuation allowance was reversed in the 2005, subsequent to the offering.
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