Frontier Communications 2005 Annual Report Download - page 72

F-23
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) COMPANY OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES:
In 1996, our consolidated wholly-owned subsidiary, Citizens Utilities Trust (the Trust), issued, in an underwritten
public offering, 4,025,000 shares of 5% Company Obligated Mandatorily Redeemable Convertible Preferred
Securities due 2036 (EPPICS), representing preferred undivided interests in the assets of the Trust, with a liquidation
preference of $50 per security (for a total liquidation amount of $201,250,000). These securities have an adjusted
conversion price of $11.46 per Citizens common share. The conversion price was reduced from $13.30 to $11.46
during the third quarter of 2004 as a result of the $2.00 per share special, non-recurring dividend. The proceeds from
the issuance of the Trust Convertible Preferred Securities and a Company capital contribution were used to purchase
$207,475,000 aggregate liquidation amount of 5% Partnership Convertible Preferred Securities due 2036 from
another wholly-owned subsidiary, Citizens Utilities Capital L.P. (the Partnership). The proceeds from the issuance
of the Partnership Convertible Preferred Securities and a Company capital contribution were used to purchase from
us $211,756,000 aggregate principal amount of 5% Convertible Subordinated Debentures due 2036. The sole assets
of the Trust are the Partnership Convertible Preferred Securities, and our Convertible Subordinated Debentures are
substantially all the assets of the Partnership. Our obligations under the agreements related to the issuances of such
securities, taken together, constitute a full and unconditional guarantee by us of the Trust’s obligations relating to the
Trust Convertible Preferred Securities and the Partnership’s obligations relating to the Partnership Convertible
Preferred Securities.
In accordance with the terms of the issuances, we paid the annual 5% interest in quarterly installments on the
Convertible Subordinated Debentures in the four quarters of 2005, 2004 and 2003. Only cash was paid (net of
investment returns) to the Partnership in payment of the interest on the Convertible Subordinated Debentures. The
cash was then distributed by the Partnership to the Trust and then by the Trust to the holders of the EPPICS.
As of December 31, 2005, EPPICS representing a total principal amount of $177,971,000 had been converted
into 14,237,807 shares of our common stock.
We adopted the provisions of FIN 46R (revised December 2003) (FIN 46R), “Consolidation of Variable Interest
Entities,” effective January 1, 2004. Accordingly, the Trust holding the EPPICS and the related Citizens Utilities
Capital L.P. are deconsolidated.
(16) CAPITAL STOCK:
We are authorized to issue up to 600,000,000 shares of common stock. The amount and timing of dividends
payable on common stock are within the sole discretion of our Board of Directors.
(17) STOCK PLANS:
At December 31, 2005, we have four stock based compensation plans, which are described below. We apply
APB Opinion No. 25 and related interpretations in accounting for the employee stock plans resulting in the use of the
intrinsic value to value the stock option. Compensation cost has not generally been recognized in the financial
statements for options issued pursuant to the Management Equity Incentive Plan (MEIP), the 1996 Equity Incentive
Plan (1996 EIP) or the Amended and Restated 2000 Equity Incentive Plan (2000 EIP), as the exercise price for such
options was equal to the market price of the stock at the time of grant.
In connection with our Directors’ Deferred Fee Equity Plan, compensation costs associated with the issuance
of stock units was $1,069,000, $2,222,000 and $607,000 in 2005, 2004 and 2003, respectively. Cash compensation
associated with this plan was $434,000, $642,000 and $374,000 in 2005, 2004 and 2003, respectively. These costs
are recognized in other operating expenses.
We have granted restricted stock awards to key employees in the form of our common stock. The number of
shares issued as restricted stock awards during 2005, 2004 and 2003 were 352,000, 2,172,000 and 312,000, respectively.
None of the restricted stock awards may be sold, assigned, pledged or otherwise transferred, voluntarily or
involuntarily, by the employees until the restrictions lapse. The restrictions are time based. At December 31, 2005,