Frontier Communications 2007 Annual Report Download - page 61

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 shareholders’ 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.
As of December 31, 2007, we had interest rate swap arrangements related to a portion of our fixed rate debt.
These hedge strategies satisfied the fair value hedging requirements of SFAS No. 133, as amended. As a result,
the fair value of the swaps is carried on the consolidated balance sheets in other liabilities and the related hedged
liabilities are also adjusted to fair value by the same amount.
(i) Investments:
Marketable Securities
We classify our cost method investments at purchase as available-for-sale. We do not maintain a trading
portfolio or held-to-maturity securities. Our marketable securities are insignificant (see Note 9).
Investments in Other Entities
Investments in entities that we do not control, but where we have the ability to exercise significant influence
over operating and financial policies, are accounted for using the equity method of accounting (see Note 9).
(j) Income Taxes and Deferred Income Taxes:
We file a consolidated federal income tax return. We utilize the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes are recorded for the tax effect of
temporary differences between the financial statement basis and the tax basis of assets and liabilities using tax
rates expected to be in effect when the temporary differences are expected to reverse.
(k) Stock Plans:
We have various stock-based compensation plans. Awards under these plans are granted to eligible officers,
management employees, non-management employees and non-employee directors. Awards may be made in the
form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted
stock units or other stock-based awards. We have no awards with market or performance conditions. Our general
policy is to issue shares upon the grant of restricted shares and exercise of options from treasury.
On January 1, 2006, we adopted the provisions of SFAS No. 123 (revised 2004), “Share-Based Payment”
(SFAS No. 123R) and elected to use the modified prospective transition method. The modified prospective
transition method requires that compensation cost be recognized in the financial statements for all awards granted
after the date of adoption as well as for existing awards for which the requisite service had not been rendered as
of the date of adoption. Compensation cost for awards that were outstanding at the effective date are recognized
over the remaining service period using the compensation cost calculated for pro forma disclosure purposes.
Prior periods have not been restated.
On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
SFAS No. 123R-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment
Awards.” We elected to adopt the alternative transition method provided for calculating the tax effects of share-
based compensation pursuant to SFAS No. 123R. The alternative transition method includes a simplified method
to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of
employee share-based compensation, which is available to absorb tax deficiencies recognized subsequent to the
adoption of SFAS No. 123R.
F-11