Frontier Communications 2005 Annual Report Download - page 59

F-10
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(f) Goodwill and Other Intangibles:
Intangibles represent the excess of purchase price over the fair value of identifiable tangible assets acquired.
We undertake studies to determine the fair values of assets and liabilities acquired and allocate purchase prices to
assets and liabilities, including property, plant and equipment, goodwill and other identifiable intangibles. We
annually (during the fourth quarter) examine the carrying value of our goodwill and trade name to determine whether
there are any impairment losses and have determined for the year ended December 31, 2005 that there was no
impairment (see Notes 2 and 7). All intangibles at December 31, 2005 are associated with the Frontier segment,
which is the reporting unit.
SFAS No. 142 also requires that intangible assets with estimated useful lives be amortized over those lives and
be reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-
Lived Assets” to determine whether any changes to these lives are required. We periodically reassess the useful life
of our intangible assets with estimated useful lives to determine whether any changes to those lives are required.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of:
We review long-lived assets to be held and used and long-lived assets to be disposed of, including intangible
assets with estimated useful lives, for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by
comparing the carrying amount of the asset to the future undiscounted net cash flows expected to be generated by
the asset. Recoverability of assets held for sale is measured by comparing the carrying amount of the assets to their
estimated fair market value. If any assets are considered to be impaired, the impairment is measured by the amount
by which the carrying amount of the assets exceeds the estimated fair value (see Note 5).
(h) Derivative Instruments and Hedging Activities:
We account for derivative instruments and hedging activities in accordance with SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133, as amended, requires that all
derivative instruments, such as interest rate swaps, be recognized in the financial statements and measured at fair
value regardless of the purpose or intent of holding them.
On the date we enter into a derivative contract that qualifies for hedge accounting, we designate the derivative
as either a fair value or cash flow hedge. A hedge of the fair value of a recognized asset or liability or of an
unrecognized firm commitment is a fair value hedge. A hedge of a forecasted transaction or the variability of cash
flows to be received or paid related to a recognized asset or liability is a cash flow hedge. We formally document all
relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy
for undertaking the hedge transaction. This process includes linking all derivatives that are designated as fair-value
or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted
transactions.
We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
If it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective
hedge, we would discontinue hedge accounting prospectively.
All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivative
financial instruments are either recognized in income or stockholders’ equity (as a component of other comprehensive
income), depending on whether the derivative is being used to hedge changes in fair value or cash flows.
We have interest rate swap arrangements related to a portion of our fixed rate debt. These hedge strategies
satisfy the fair value hedging requirements of SFAS No. 133, as amended. As a result, the fair value of the swaps is
carried on the balance sheet in other current assets and the related hedged liabilities are also adjusted to fair value by
the same amount.