Frontier Communications 2007 Annual Report Download - page 69

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We recorded a long-term 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
amount 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
interest method. We corrected this error by increasing the debt discount by $4.8 million and increasing retained
earnings by a like amount.
Customer Advances for Construction. Amounts associated with “construction advances” remaining on
the Company’s balance sheet ($92.4 million at December 31, 2005) included approximately $7.3 million of such
contract advances that were transferred to the purchaser of our water and wastewater operations on January 15,
2002 and accordingly should have been included in the gain recognized upon sale during that period. Upon the
adoption of SAB No. 108 in the fourth quarter of 2006, this error was corrected as of January 1, 2006 through a
decrease in other long-term liabilities and an increase in retained earnings.
Purchase Accounting. During the period 1991 to 2001, Citizens acquired a number of telecommunications
businesses, growing its asset base from approximately $400.0 million in 1991 to approximately $6.0 billion by
the end of 2001. As a result of these acquisitions, we recorded in accordance with purchase accounting standards,
all of the assets and liabilities associated with these properties. We have determined that approximately $18.8
million (net) of liabilities were established in error. Approximately $18.0 million of the liabilities should have
been recorded as a decrease to goodwill and $4.2 million should have been an increase to property, plant and
equipment ($1.99 million after amortization of $2.21 million). In addition, $4.964 million of liabilities should
have been reversed in 2001. We corrected this error by reversing the liability to retained earnings.
As permitted by the adoption of SAB No. 108 we have adjusted our previously recorded acquisition entries
as follows:
($ in thousands) Increase/(Decrease)
Property, Plant & Equipment ................................... $ 1,990
Goodwill ................................................... (18,049)
$(16,059)
Current Liabilities ............................................ $(10,468)
Other Long-Term Liabilities ................................... (8,345)
Retained Earnings ............................................ 2,754
$(16,059)
Tax Effect. The net effect on taxes (excluding the $23.5 million entry described above) resulting from the
adoption of SAB No. 108 was an increase to deferred tax liabilities of $6.2 million and an increase to goodwill of
$6.2 million.
F-19