Frontier Communications 2007 Annual Report Download - page 34

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
(b) RESULTS OF OPERATIONS
In the paragraphs below, the Company has shown adjustments to its financial presentations to exclude the
effects of the acquisitions of CTE and GVN because of the aggregate magnitude of the acquisitions and their
impact on the Company’s financial results in 2007. The Company’s variance explanations below are based upon
an analysis of 2007 for Citizens (excluding CTE and GVN), except that the first sentence in each section of
revenue or expense shows the revenue, expenses and/or variances based upon an analysis of Citizens including
the acquired properties.
REVENUE
Revenue is generated primarily through the provision of local, network access, long distance and data and
internet services. Such services are provided through either a monthly recurring fee or a fee based on usage at a
tariffed rate and revenue recognition is not dependent upon significant judgments by management, with the
exception of a determination of a provision for uncollectible amounts.
Consolidated revenue for the year ended December 31, 2007 increased $262.6 million, or 13%, to $2,288.0
million as compared with the prior year. Excluding the additional revenue due to the CTE and GVN acquisitions,
revenue decreased $4.0 million during 2007, as compared with the prior year. During the first quarter of 2007,
we had a significant favorable settlement of a dispute with a carrier that resulted in a favorable one-time impact
to our revenues of $38.7 million. Excluding the impact of our acquisitions and the one-time favorable settlement,
our revenues for the year ended December 31, 2007 would have been $1,982.7 million, a decrease of $42.7
million, or 2%, as compared to the prior year, primarily from a reduction of $39.9 million in subsidies received
from federal and state funds.
Consolidated revenue increased $8.3 million to $2.025 billion in 2006 from $2.017 billion in 2005. The
increase in 2006 was primarily due to a 24% increase in high-speed internet subscribers partially offset by a loss
of access lines, a decline in the average rate per minute for long distance customers and an increase in bad debt
expense.
Change in the number of our access lines is important to our revenue and profitability. We have lost access
lines primarily because of competition, changing consumer behavior, economic conditions, changing technology
and by some customers disconnecting second lines when they add high-speed internet or cable modem service.
Excluding the impact of our acquisitions, we lost approximately 130,300 access lines during 2007, but added
approximately 66,700 high-speed internet subscribers during this same period. Our GVN acquisition represented
approximately 15,300 access lines and 4,200 high-speed internet subscribers as of December 31, 2007. The loss
of access lines during 2007 was primarily among residential customers. The non-residential line losses were
principally in our central and eastern regions and Rochester, New York, while the residential losses were
throughout our markets. We expect to continue to lose access lines but to increase high-speed internet subscribers
during 2008. A continued loss of access lines, combined with increased competition and the other factors
discussed herein may cause our revenues, profitability and cash flows to decrease in 2008.
Our historical results include the results of operations of Commonwealth from the date of its acquisition on
March 8, 2007 and of GVN from the date of its acquisition on October 31, 2007. The financial tables below
include a comparative analysis of our results of operations on a historical basis for 2007, 2006 and 2005. We
have also presented an analysis of each category for 2007 for the results of Citizens (excluding CTE and GVN)
and the results of our acquisitions: CTE for the last 23 days of March and the nine months ended December 31,
2007, and the results of GVN for the last two months of 2007, as included in the consolidated results of
operations.
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