Frontier Communications 2004 Annual Report Download - page 53

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-9
(1) Description of Business and Summary of Significant Accounting Policies:
(a) Description of Business:
Citizens Communications Company and its subsidiaries are referred to as “we”, “us”, the “Company” or “our” in
this report. We are a communications company providing services to rural areas and small and medium-sized
towns and cities as an incumbent local exchange carrier, or ILEC. We offer our ILEC services under the
“Frontier” name. In addition, we provide competitive local exchange carrier, or CLEC, services to business
customers and to other communications carriers in certain metropolitan areas in the western United States
through Electric Lightwave, LLC, or ELI, our wholly-owned subsidiary. On April 1, 2004, we announced the
completion of the sale of our Vermont Electric Division. With that transaction, we completed the divestiture of
our public utilities services segment pursuant to plans announced in 1999.
(b) Principles of Consolidation and Use of Estimates:
Our consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP). Certain reclassifications of balances previously reported have
been made to conform to the current presentation. All significant intercompany balances and transactions have
been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions which affect the amounts of assets, liabilities, revenue and expenses we have reported and our
disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from
those estimates. We believe that our critical estimates are depreciation rates, pension assumptions, calculations of
impairment amounts, reserves established for receivables, income taxes and contingencies.
(c) Cash Equivalents:
We consider all highly liquid investments with an original maturity of three months or less to be cash
equivalents.
(d) Revenue Recognition:
Incumbent Local Exchange Carrier (ILEC) – Revenue is recognized when services are provided or when
products are delivered to customers. Revenue that is billed in advance includes: monthly recurring network
access services, special access services and monthly recurring local line charges. The unearned portion of this
revenue is initially deferred as a component of other liabilities on our consolidated balance sheet and recognized
in revenue over the period that the services are provided. Revenue that is billed in arrears includes: non-
recurring network access services, switched access services, non-recurring local services and long-distance
services. The earned but unbilled portion of this revenue is recognized in revenue in our statement of operations
and accrued in accounts receivable in the period that the services are provided. Excise taxes are recognized as a
liability when billed. Installation fees and their related direct and incremental costs are initially deferred and
recognized as revenue and expense over the average term of a customer relationship. We recognize as current
period expense the portion of installation costs that exceeds installation fee revenue.
ELI - Revenue is recognized when the services are provided. Revenue from long–term prepaid network services
agreements including Indefeasible Rights to Use (IRU), are deferred and recognized on a straight-line basis over
the terms of the related agreements. Installation fees and their related direct and incremental costs are initially
deferred and recognized as revenue and expense over the average term of a customer relationship. We recognize
as current period expense the portion of installation costs that exceeds installation fee revenue.
(e) Property, Plant and Equipment:
Property, plant and equipment are stated at original cost or fair market value for our acquired properties, including
capitalized interest. Maintenance and repairs are charged to operating expenses as incurred. The book value, net of
salvage, of routine property, plant and equipment dispositions is charged against accumulated depreciation.
(f) Goodwill and Other Intangibles:
Intangibles represent the excess of purchase price over the fair value of identifiable tangible assets acquired. We
undertake studies to determine the fair values of assets and liabilities acquired and allocate purchase prices to