Frontier Communications 2004 Annual Report Download - page 32

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
30
Electric energy and fuel oil purchased
Electric energy and fuel oil purchased for the year ended December 31, 2004 decreased $58.3 million, or 91%, as compared with
the prior year. We completed the sale of our remaining electric utility property on April 1, 2004. We have sold all of our
electric operations and as a result will have no operating results in future periods for these businesses.
Electric energy and fuel oil purchased for the year ended December 31, 2003 decreased $54.7 million, or 46%, as compared with
the prior year primarily due to the sales of our Arizona electric division and Kauai Electric.
Operating Expenses
Operating expenses for the year ended December 31, 2004 decreased $61.6 million, or 9%, as compared with the prior year
primarily due to decreased operating expenses in the public services sector due to the sales of our utilities and increased operating
efficiencies and a reduction of personnel in our communications business. We routinely review our operations, personnel and
facilities to achieve greater efficiencies. These reviews may result in reductions in personnel and an increase in severance costs.
Included in operating expenses are expenses attributable to our efforts to comply with the internal control requirements of the
Sarbanes-Oxley Act of 2002. As of December 31, 2004, we have incurred approximately $4.2 million in connection with this
initiative.
Included in operating expenses is stock compensation expense. Compensation arrangements entered into in connection with
management succession and strategic alternatives will result in stock compensation expense of approximately $5.2 million in
2005, $5.1 million in 2006 and $1.0 million in 2007. In addition, during the third quarter of 2005, we will begin expensing
the cost of the unvested portion of outstanding stock options pursuant to SFAS No. 123R. We expect to recognize
approximately $3.0 million of expense for the last six months of 2005.
Included in operating expenses is pension expense. In future periods, if the value of our pension assets decline and/or
projected benefit costs increase, we may have increased pension expenses. Based on current assumptions and plan asset
values, we estimate that our pension expense will increase from $3.6 million in 2004 to approximately $5.0 million to $7.0
million in 2005 and that no contribution to our pension plans will be required to be made by us to the pension plan in 2005.
In addition, as medical costs increase the costs of our postretirement benefit costs also increase. Our retiree medical costs for
2004 were $16.6 million and our current estimate for 2005 is approximately $17.0 million.
Operating expenses for the year ended December 31, 2003 decreased $70.6 million, or 9%, as compared with the prior year
primarily due to increased operating efficiencies and a reduction of personnel in the ILEC and ELI sectors (310 fewer
employees than 2002) and decreased operating expenses in the gas and electric sectors due to the sales of The Gas Company
in Hawaii ($11.3 million), our Arizona gas and electric divisions ($16.4 million) and Kauai Electric ($21.5 million).
Expenses were negatively impacted by increased compensation expense of $1.5 million related to variable stock plans and
increased pension expenses.
Taxes Other than Income Taxes
Taxes other than income taxes for the year ended December 31, 2004 decreased $2.6 million, or 3%, as compared with the prior
year primarily due to decreased property taxes in the public services sector due to the sales of our utilities and lower gross
receipts taxes of $3.7 million in the ILEC sector that were partially offset by higher payroll, property and franchise taxes of
$13.0 million.
Taxes other than income taxes for the year ended December 31, 2003 decreased $34.1 million, or 26%, as compared with the
prior year primarily due to decreased property taxes at ELI as a result of lower asset values and the sales of our utilities.
($ in thousands) 2002
Amount $ Change % Change Amount $ Change % Change Amount
Operating expenses 630,669$ (61,580)$ -9% 692,249$ (70,624)$ -9% 762,873$
Taxes other than income taxes 94,481 (2,638) -3% 97,119 (34,139) -26% 131,258
Sales and marketing 115,036 2,653 2% 112,383 4,159 4% 108,224
840,186$ (61,565)$ -7% 901,751$ (100,604)$ -10% 1,002,355$
OTHER OPERATING EXPENSES
2004 2003