Frontier Communications 2006 Annual Report Download - page 64

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
connection with the Commonwealth transaction. We expect the need to borrow $200.0 million—$300.0 million
under the remaining commitment to close the Commonwealth transaction, pay all closing transaction costs and
implementation costs.
(4) PROPERTY, PLANT AND EQUIPMENT:
The components of property, plant and equipment at December 31, 2006 and 2005 are as follows:
($ in thousands)
Estimated
Useful Lives 2006 2005
Land .................................................. N/A $ 17,944 $ 17,921
Buildings and leasehold improvements ....................... 41years 324,230 320,789
General support ......................................... 5to17years 425,952 411,191
Central office/electronic circuit equipment .................... 5to11years 2,602,168 2,509,769
Cable and wire .......................................... 15to60years 3,171,421 3,052,560
Other .................................................. 20to30years 11,800 22,307
Construction work in progress .............................. 131,951 98,582
6,685,466 6,433,119
Less: accumulated depreciation ............................. (3,701,962) (3,374,807)
Property, plant and equipment, net .......................... $2,983,504 $ 3,058,312
Depreciation expense is principally based on the composite group method. Depreciation expense was
$350,107,000, $393,826,000 and $422,861,000 for the years ended December 31, 2006, 2005 and 2004,
respectively. Effective with the completion of an independent study of the estimated useful lives of our plant
assets we adopted new lives beginning October 1, 2006.
(5) RETAINED EARNINGS—CUMULATIVE EFFECT ADJUSTMENT:
In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) Topic 1N (SAB No. 108),
“Financial Statements—Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements”. SAB No. 108 provides guidance on how prior year misstatements should be
taken into consideration when quantifying misstatements in current year financial statements for purposes of
determining whether the financial statements are materially misstated. Under this guidance, companies should
take into account both the effect of a misstatement on the current year balance sheet as well as the impact upon
the current year income statement in assessing the materiality of a current year misstatement. Once a current year
misstatement has been quantified, the guidance in SAB Topic 1M, “Financial Statements Materiality,”
(SAB No. 99) will be applied to determine whether the misstatement is material.
SAB No. 108 allows for a one-time transitional cumulative effect adjustment to beginning retained earnings
as of January 1, 2006 for errors that were not previously deemed material as they were being evaluated under a
single method but are material when evaluated under the dual approach proscribed by SAB No. 108. The
Company adopted SAB No. 108 in connection with the preparation of its financial statements for the year ended
December 31, 2006. The adoption did not have any impact on the Company’s cash flow or prior year financial
statements. As a result of adopting SAB No. 108 in the fourth quarter of 2006 and electing to use the one-time
transitional cumulative effect adjustment, the Company made adjustments to the beginning balance of retained
earnings as of January 1, 2006 in the fourth quarter of 2006 for the following errors (all of which were
determined to be immaterial under the Company’s previous methodology):
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