Frontier Communications 2005 Annual Report Download - page 62

F-13
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock-Based Compensation
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition
and Disclosure, an amendment of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” SFAS No.
148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting
for stock-based compensation and amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements. This statement is effective for fiscal years ending after
December 15, 2002. We have adopted the expanded disclosure requirements of SFAS No. 148.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (SFAS No. 123R).
SFAS No. 123R requires that stock-based employee compensation be recorded as a charge to earnings. In April 2005,
the Securities and Exchange Commission required 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.
Variable Interest Entities
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003) (FIN 46R),
“Consolidation of Variable Interest Entities,” which addresses how a business enterprise should evaluate whether it
has a controlling financial interest in an entity through means other than voting rights and accordingly should
consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,”
which was issued in January 2003. We are required to apply FIN 46R to variable interests in variable interest
entities, or VIEs, created after December 31, 2003. For any VIEs that must be consolidated under FIN 46R that were
created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be
measured at their carrying amounts with any difference between the net amount added to the balance sheet and any
previously recognized interest being recognized as the cumulative effect of an accounting change. If determining
the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets,
liabilities and noncontrolling interest of the VIE. We reviewed all of our investments and determined that the Trust
Convertible Preferred Securities (EPPICS), issued by our consolidated wholly-owned subsidiary, Citizens Utilities
Trust and the related Citizens Utilities Capital L.P., were our only VIEs. Except as described in Note 15, the adoption
of FIN 46R on January 1, 2004 did not have a material impact on our financial position or results of operations.
Investments
In March 2004, the FASB issued EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments” (EITF 03-1), which provides new guidance for assessing impairment
losses on debt and equity investments. Additionally, EITF 03-1 includes new disclosure requirements for investments
that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of
EITF 03-1; however, the disclosure requirements remain effective and were adopted for our year ended December 31,
2004. Although we have no material investments at the present time, we will evaluate the effect, if any, of
EITF 03-1 when final guidance is released.
Exchanges of Productive Assets
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,” an amendment of APB
Opinion No. 29. SFAS No. 153 addresses the measurement of exchanges of certain non-monetary assets (except for
certain exchanges of products or property held for sale in the ordinary course of business). The Statement requires that
non-monetary exchanges be accounted for at the fair value of the assets exchanged, with gains or losses being recognized,
if the fair value is determinable within reasonable limits and the transaction has commercial substance. SFAS No. 153
is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect
the adoption of the new standard to have a material impact on our financial position, results of operations and cash
flows.