Frontier Communications 2005 Annual Report Download - page 58

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F-9
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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. In February 2006, we entered into a definitive agreement to
sell ELI and we expect the sale to close in the third quarter of 2006.
(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:
Frontier – 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.
Electric Lightwave, LLC (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 gross
book value of routine property, plant and equipment retired is charged against accumulated depreciation.