Frontier Communications 2005 Annual Report Download - page 60

F-11
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Investments:
Marketable Securities
We classify our cost method investments at purchase as available-for-sale. We do not maintain a trading
portfolio or held-to-maturity securities.
Securities classified as available-for-sale are carried at estimated fair market value. These securities are held
for an indefinite period of time, but might be sold in the future as changes in market conditions or economic factors
occur. Net aggregate unrealized gains and losses related to such securities, net of taxes, are included as a separate
component of shareholders’ equity. Interest, dividends and gains and losses realized on sales of securities are reported
in Investment income.
We evaluate our investments periodically to determine whether any decline in fair value, below the cost basis,
is other than temporary. To determine whether an impairment is other than temporary, we consider whether we have
the ability and intent to hold the investment until a market price recovery and whether evidence indicating the cost
of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes
the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end,
and forecasted performance of the investee. If we determine that a decline in fair value is other than temporary, the
cost basis of the individual investment is written down to fair value, which becomes the new cost basis. The amount
of the write-down is transferred from other comprehensive income (loss) and included in the statement of operations
as a loss.
Investments in Other Entities
Investments in entities that we do not control, but where we have the ability to exercise significant influence
over operating and financial policies, are accounted for using the equity method of accounting.
(j) Income Taxes and Deferred Income Taxes:
We file a consolidated federal income tax return. We utilize the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes are recorded for the tax effect of temporary
differences between the financial statement basis and the tax basis of assets and liabilities using tax rates expected
to be in effect when the temporary differences are expected to reverse.
(k) Stock Plans:
We have various stock-based compensation plans. Awards under these plans are granted to eligible officers,
management, non-management employees and non-employee directors. Awards may be made in the form of incentive
stock options, non-qualified stock options, stock appreciation rights, restricted stock or other stock based awards. As
permitted by current accounting rules, we apply Accounting Principles Board Opinions (APB) No. 25 and related
interpretations in accounting for the employee stock plans resulting in the use of the intrinsic value to value the
stock.
SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based
Compensation – Transition and Disclosure, an amendment of SFAS No. 123,” established accounting and disclosure
requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As
permitted by existing accounting standards, we have elected to continue to apply the intrinsic-valued-based method
of accounting described above, and have adopted only the disclosure requirements of SFAS No. 123, as amended.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No.
123R”). SFAS 123R requires that stock-based employee compensation be recorded as a charge to earnings. In April
2005, the Securities and Exchange Commission required the adoption of SFAS No. 123R for annual periods beginning
after June 15, 2005. Accordingly, we will adopt SFAS 123R commencing January 1, 2006 and expect to recognize
approximately $2,800,000 of expense related to the non-vested portion of previously granted stock options for the
year ended December 31, 2006.