Frontier Communications 2005 Annual Report Download - page 30

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
greater than 4.50 to 1. Although the credit facility is unsecured, it will be equally and ratably secured by certain liens
and equally and ratably guaranteed by certain of our subsidiaries if we issue debt that is secured or guaranteed. We
are in compliance with all of our debt and credit facility covenants.
Divestitures
On August 24, 1999, our Board of Directors approved a plan of divestiture for our public utilities services
businesses, which included gas, electric and water and wastewater businesses. We have sold all of these properties.
All of the agreements relating to the sales provide that we will indemnify the buyer against certain liabilities (typically
liabilities relating to events that occurred prior to sale), including environmental liabilities, for claims made by
specified dates and that exceed threshold amounts specified in each agreement.
In February 2006, we entered into a definitive agreement to sell ELI. We anticipate the recognition of a pre-tax
gain on the sale of ELI of approximately $130.0 million. ELI had revenues of $159.2 million and operating income
of $18.3 million for the year ended December 31, 2005. At December 31, 2005, ELI’s net assets totaled $123.1
million.
Discontinued Operations
On March 15, 2005, we completed the sale of Conference Call USA, LLC (CCUSA) for $43.6 million in cash,
subject to adjustments under the terms of the agreement. The pre-tax gain on the sale of CCUSA was $14.1 million.
Our after-tax gain was $1.2 million. The book income taxes recorded upon sale are primarily attributable to a low
tax basis in the assets sold.
Rural Telephone Bank
In August 2005, the Board of Directors of the Rural Telephone Bank (RTB) voted to dissolve the bank. In
November 2005, the Administration approved the appropriate provisions in the 2006 federal budget necessary for
dissolution of the RTB. We expect to receive during the second quarter of 2006 approximately $64.6 million in cash
from the dissolution of the RTB, which would result in a pre-tax gain of approximately $62.0 million when we receive
the cash.
Critical Accounting Policies and Estimates
We review all significant estimates affecting our consolidated financial statements on a recurring basis and
record the effect of any necessary adjustment prior to their publication. Uncertainties with respect to such estimates
and assumptions are inherent in the preparation of financial statements; accordingly, it is possible that actual results
could differ from those estimates and changes to estimates could occur in the near term. The preparation of our
financial statements requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Estimates and judgments are used when
accounting for allowance for doubtful accounts, impairment of long-lived assets, intangible assets, depreciation and
amortization, employee benefit plans, income taxes, contingencies, and pension and postretirement benefits expenses
among others.
Telecommunications Bankruptcies
Our estimate of anticipated losses related to telecommunications bankruptcies is a “critical accounting
estimate.” We have significant on-going normal course business relationships with many telecom providers, some of
which have filed for bankruptcy. We generally reserve approximately 95% of the net outstanding pre-bankruptcy
balances owed to us and believe that our estimate of the net realizable value of the amounts owed to us by bankrupt
entities is appropriate. In 2005 and 2004, we had no “critical estimates” related to telecommunications
bankruptcies.
Asset Impairment
In 2005 and 2004, we had no “critical estimates” related to asset impairments.