FairPoint Communications 2011 Annual Report Download - page 113

Table of Contents
For the 341 day period ended December 31, 2011, the Successor Company’s effective tax benefit rate on $468.2 million of pre-tax loss was 11.4%. The
rate differs from the 35% federal statutory rate primarily due to an impairment charge reducing the carrying value of the Company’s goodwill to zero and an
increase in the Company’s valuation allowance.
For the 24 day period ended January 24, 2011, the Predecessor Company’s effective tax rate on $866.8 million of pre-tax income was 32.3%. The rate
differs from the 35% federal statutory rate primarily due to the release of the valuation allowance and other miscellaneous reorganization adjustments.
The effective tax rate for the year ended December 31, 2010 was a 2.6% benefit. The effective tax rate was impacted by a one-time, non-cash income tax
charge of $6.8 million during the first quarter of 2010, as a result of the enactment of the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010, both of which became law in March 2010 (collectively, the “Health Care Act”). The effective tax rate for the year ended
December 31, 2010 was also impacted by non-deductible restructuring charges and post-petition interest, as well as a significant increase in the Company’s
valuation allowance for deferred tax assets due to its inability, by rule, to rely on future earnings to offset its NOLs during the Chapter 11 Cases.
The effective tax rate for the year ended December 31, 2009 was a 24.7% benefit. The effective tax rate was impacted by non-deductible restructuring
charges and post-petition interest, as well as an increase in the Company’s valuation allowance due to its inability, by rule, to rely on future earnings.
A reconciliation of the Company’s statutory tax rate to its effective tax rate is presented below (in percentages):
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Statutory Federal income tax (benefit) rate (35.0)% 35.0% (35.0)% (35.0)%
State income tax (benefit) expense, net of Federal income tax expense (4.0) 4.3 (2.9) (2.9)
Post-petition interest — 0.4 16.6 2.7
Goodwill impairment 16.2 13.7 — —
Non-taxable debt cancellation income (9.3) (12.3) — —
Investment tax credits — — (0.2) (0.1)
Restructuring charges 0.3 0.3 2.6 1.3
Medicare subsidy impact of law change — — 2.4 —
Other, net 1.2 (0.2) (0.1) 0.8
Valuation allowance 19.2 (8.9) 14.0 8.5
Effective income tax (benefit) rate (11.4)% 32.3% (2.6)% (24.7)%
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2011
and 2010 are presented below (in thousands):
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Deferred tax assets:
Federal and state tax loss carryforwards $77,765 $230,398
Employee benefits 282,868 179,904
Allowance for doubtful accounts 16,045 16,288
Investment tax credits — 1,729
Alternative minimum tax and other state credits 4,144 7,315
Basis in interest rate swaps — 7,087
Bond issuance costs — 10,980
Service quality rebate reserve 3,002 8,333
Other, net 19,006 15,008
Total gross deferred tax assets 402,830 477,042
Deferred tax liabilities:
Property, plant, and equipment 407,944 319,244
Goodwill and other intangible assets 38,235 81,165
Other, net 11,230 7,060
Total gross deferred tax liabilities 457,409 407,469
Net deferred tax (liabilities) assets before valuation allowance (54,579) 69,573
Valuation allowance (172,875) (105,554)
Net deferred tax liabilities $(227,454) $(35,981)
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