Frontier Communications 2006 Annual Report Download - page 67

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Additions
Accounts
Balance at
beginning of
period
Charged to
bad debt
expense*
Charged
to other
accounts -
Revenue Deductions
Balance at
End of Period
Allowance for doubtful
accounts
2004 ................. $ 35,916 $ 17,657 $ 2,215 $ 20,708 $ 35,080
2005 ................. 35,080 12,797 1,080 17,572 31,385
2006 ................. 31,385 20,257 80,003 23,108 108,537
* Such amounts are included in bad debt expense and for financial reporting purposes are classified as
contra-revenue.
We maintain an allowance for estimated bad debts based on our estimate of collectibility of our accounts
receivable. Bad debt expense is recorded as a reduction to revenue. Our reserve has increased by approximately
$78,250,000 as a result of carrier activity that is in dispute.
Our principal carrier dispute concerns the “origination” of certain calls carried by AT&T Corp. and AT&T
Communications, Inc. (collectively, “AT&T”) and terminated on our networks. In January 2006, we filed a
complaint against AT&T in the United States District Court for the District of New Jersey with respect to this
dispute (which case was consolidated with that of other plaintiffs in February 2006). During the pendency of the
dispute we became better able to estimate the true “origination” of the calls and minutes in dispute and back
billed AT&T for the difference in rates, including interest. We have reserved substantially all of these amounts.
The FCC has denied AT&T’s petition regarding its treatment on the “origination” of the specific class of calls
but left any resolution of retroactive payments to the parties. In November 2006, AT&T filed counterclaims
against us. We have been engaged in settlement negotiations with AT&T. If a settlement is not reached, we will
continue to vigorously pursue our case and defend the counterclaims in the federal court.
(7) OTHER INTANGIBLES:
Other intangibles at December 31, 2006 and 2005 are as follows:
($ in thousands) 2006 2005
Customer base - amortizable over 96 months ...................... $ 994,605 $ 994,605
Trade name - non-amortizable ................................. 122,058 122,058
Other intangibles ........................................ 1,116,663 1,116,663
Accumulated amortization .................................... (684,310) (557,930)
Total other intangibles, net ................................ $ 432,353 $ 558,733
Amortization expense was $126,380,000, $126,378,000 and $126,520,000 for the years ended December 31,
2006, 2005 and 2004, respectively. Amortization expense, based on our estimate of useful lives, is estimated to
be $126,380,000 per year through 2008 and $57,535,000 in 2009, at which point the customer base will have
been fully amortized.
(8) Discontinued Operations:
(a) Electric Lightwave
On July 31, 2006, we sold our CLEC business, Electric Lightwave LLC (ELI), for $255.3 million in cash
plus the assumption of approximately $4.0 million in capital lease obligations. We recognized a pre-tax gain on
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