Frontier Communications 2005 Annual Report Download - page 39

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37
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
DEPRECIATION AND AMORTIZATION EXPENSE
2005 2004 2003
($ in thousands) Amount $ Change % Change Amount $ Change % Change Amount
Depreciation expense . . . . . . . . $ 415,581 $ (28,707 ) -6 % $ 444,288 $(22,035 ) -5 % $ 466,323
Amortization expense . . . . . . . . 126,378 (142 ) 0 % 126,520 (318 ) 0 % 126,838
$ 541,959 $ (28,849 ) -5% $ 570,808 $(22,353 ) -4% $ 593,161
Depreciation expense for the years ended December 31, 2005 and 2004 decreased $28.7 million, or 6%, and
$22.0 million, or 5%, respectively, as compared with the prior years due to a declining asset base. Effective with the
completion of an independent study of the estimated useful lives of our plant assets we adopted new lives beginning
October 1, 2005. Based on the study and our planned capital expenditures, we expect that our depreciation expense
will decline in 2006 by approximately 12.5% compared to 2005. The decline is principally the result of extending
the remaining useful lives of our copper facilities from approximately 16 years to a range of 26 to 30 years.
RESERVE FOR TELECOMMUNICATIONS BANKRUPTCIES/RESTRUCTURING AND OTHER
EXPENSES/MANAGEMENT SUCCESSION AND STRATEGIC ALTERNATIVES EXPENSES
($ in thousands)
2005 2004 2003
Amount $ Change % Change Amount $ Change % Change Amount
Reserve for (recovery of)
telecommunications
bankruptcies . . . . . . . . . . . $ — $ — 0 % $ — $ 4,377 -100 % $ (4,377 )
Restructuring and other
expenses . . . . . . . . . . . . . . $ — $ — 0 % $ — $ (9,687 ) -100 % $ 9,687
Management succession
and strategic alternatives
expenses . . . . . . . . . . . . . . $ — $ (90,632 ) -100% $ 90,632 $ — 0% $ 90,632
On July 11, 2004, our Board of Directors announced that it completed its review of our financial and strategic
alternatives. In 2004, we expensed $90.6 million of costs related to management succession and our exploration of
financial and strategic alternatives. Included are $36.6 million of non-cash expenses for the acceleration of stock
benefits, cash expenses of $19.2 million for advisory fees, $19.3 million for severance and retention arrangements and
$15.5 million primarily for tax reimbursements.
During the fourth quarter of 2003, an agreement with WorldCom/MCI was approved by the bankruptcy court
settling all pre-bankruptcy petition obligations and receivables. This settlement resulted in reduction to our reserve
of approximately $6.6 million in the fourth quarter of 2003. During the second quarter of 2003, we reserved
approximately $2.3 million of trade receivables with Touch America as a result of Touch America’s filing for
bankruptcy. These receivables were generated as a result of providing ordinary course telecommunication services.
If other telecommunications companies file for bankruptcy, we may have additional significant reserves in future
periods.
Restructuring and other expenses for 2003 primarily consisted of severance expenses related to reductions in
personnel at our telecommunications operations and the write-off of software no longer used.
LOSS ON IMPAIRMENT
($ in thousands) 2003
Amount
Loss on impairment . . . . . . . . . . $ 15,300