Frontier Communications 2006 Annual Report Download - page 65

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Summary SAB No. 108 entry recorded January 1, 2006:
($ in thousands) Increase/(Decrease)
Property, Plant & Equipment ................................... $ 1,990
Goodwill ................................................... (3,716)
Other Assets ................................................ (20,081)
$ (21,807)
Current Liabilities ............................................ $ (2,922)
Deferred Taxes .............................................. (17,339)
Other Long-Term Liabilities ................................... (13,037)
Long-term Debt ............................................. (24,901)
Retained Earnings ............................................ 36,392
$ (21,807)
Deferred Tax Accounting. As a result of adopting SAB No. 108 in the fourth quarter of 2006 we recorded
a decrease in deferred income tax liabilities in the amount of approximately $23.5 million and an increase in
retained earnings of approximately $23.5 million as of January 1, 2006. The change in deferred tax and retained
earnings is a result of excess deferred tax liabilities that built up in periods prior to 2003 (approximately
$4 million in 2003, $5.4 million in 2002 and $14.1 million in 2001 and prior) resulting primarily from
differences between actual state income tax rates and the effective composite state rate utilized for estimating the
Company’s book state tax provisions.
Goodwill. During 2002 we estimated and booked impairment charges (pre-tax) of $1.07 billion. We
subsequently discovered that the impairment charge recorded was overstated as it exceeded the underlying book
value by approximately $8.1 million. The result was an understatement of goodwill. We corrected this error by
reversing the negative goodwill balance of $8.1 million with an offset to increase retained earnings.
Unrecorded Liabilities. Citizens has changed its accounting policies associated with the accrual of utilities
and vacation expense. Historically, the Company’s practice was to expense utility and vacation costs in the
period these items were paid, which generally resulted in a full year of utilities and vacation expense in the
consolidated statements of income. The utility costs will now be accrued in the period used and vacation costs
will be accrued in the period earned. The cumulative amount of these changes as of the beginning of fiscal 2006
was approximately $3.0 million and, as provided in SAB No. 108, the impact was recorded as a reduction of
retained earnings as of the beginning of fiscal 2006.
We established an accrual of $4.5 million for advance billings associated with certain revenue at two
telephone properties that the Company has operated since the 1930’s. For these two properties, the Company’s
records have not reflected the liability. This had no impact on the revenue reported for any of the five years
reported in this 10-K.
We recorded a liability of $2.5 million to recognize a post retirement annuity payment obligation for two
former executives of the Company. The liability should have been established in 1999 at the time the two
employees elected to exchange their death benefit rights for an annuity payout in accordance with the terms of
their respective split dollar life insurance agreements. We established the liability effective January 1, 2006 in
accordance with SAB No. 108 by reducing retained earnings by a like amount.
Long-Term Debt. We recorded a reclassification of $20.1 million from other assets to long-term debt. The
balance represents debt discounts which the company historically accounted for as a deferred asset. For certain
debt issuances the Company amortized the debt discount using the straight line method instead of the effective
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