Frontier Communications 2006 Annual Report Download - page 75

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of the Trust, with a liquidation preference of $50 per security (for a total liquidation amount of $201,250,000).
These securities convert into our common stock at an adjusted conversion price of $11.46 per share of our
common stock. 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 of common stock 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 2006, 2005 and 2004. 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, 2006, EPPICS representing a total principal amount of $193,896,000 had been
converted into 15,626,965 shares of our common stock. A total of $7,354,000 of EPPICS is outstanding as of
December 31, 2006 and if all outstanding EPPICS were converted, 641,485 shares of our common stock would
be issued upon such conversion. Our long-term debt footnote indicates $17,860,000 of EPPICS outstanding at
December 31, 2006, of which $10,500,000 is debt of related parties for which the company has an offsetting
receivable.
We adopted the provisions of FIN No. 46R (revised December 2003) (FIN No. 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, subject to applicable law, within the sole discretion of our Board of Directors.
(17) STOCK PLANS:
At December 31, 2006, we had five stock-based compensation plans under which grants have been made
and awards remained outstanding. These plans, which are described below are the Management Equity Incentive
Plan (MEIP), the 1996 Equity Incentive Plan (1996 EIP), the Amended and Restated 2000 Equity Incentive Plan
(2000 EIP), the Non-Employee Directors’ Deferred Fee Plan (Deferred Fee Plan) and the Non-Employee
Directors’ Equity Incentive Plan (Director’s Equity Plan, and together with the Deferred Fee plan, the Director
Plans).
Prior to the adoption of SFAS No. 123R, we applied APB No. 25 and related interpretations to account for
our stock plans resulting in the use of the intrinsic value to value the stock and determine compensation expense.
Under APB No. 25, we were not required to recognize compensation expense for the cost of stock options. In
accordance with the adoption of SFAS No. 123R, we recorded stock-based compensation expense for 2006 in the
amount of $2,230,000 for the cost of stock options. Our general policy is to issue shares upon the grant of
restricted shares and exercise of options from treasury. At December 31, 2006, there were 29,930,472 shares
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