Frontier Communications 2008 Annual Report Download - page 31

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after-tax gain on the sale was $71.6 million. Our cash liability for taxes as a result of the sale was
approximately $5.0 million due to the utilization of existing tax net operating losses on both the Federal and
state level.
Critical Accounting Policies and Estimates
We review all significant estimates affecting our consolidated financial statements on a recurring basis and
record the effect of any necessary adjustment prior to their publication. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial statements; accordingly, it is possible that
actual results could differ from those estimates and changes to estimates could occur in the near term. The
preparation of our financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent
assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. Estimates
and judgments are used when accounting for allowance for doubtful accounts, impairment of long-lived assets,
intangible assets, depreciation and amortization, pension and other postretirement benefits, income taxes,
contingencies and purchase price allocations among others.
Management has discussed the development and selection of these critical accounting estimates with the
Audit Committee of our Board of Directors and our Audit Committee has reviewed our disclosures relating to
such estimates.
Allowance for Doubtful Accounts
We maintain an allowance for estimated bad debts based on our estimate of collectability of our accounts
receivable through a review of aging categories and specific customer accounts. In 2008 and 2007, we had no
“critical estimates” related to telecommunications bankruptcies.
Asset Impairment
In 2008 and 2007, we had no “critical estimates” related to asset impairments.
Intangibles
Our indefinite lived intangibles consist of goodwill and trade name, which resulted from the purchase of
ILEC properties. We test for impairment of these assets annually, or more frequently, as circumstances warrant.
All of our ILEC properties share similar economic characteristics and as a result, we aggregate our four
operating segments into one reportable segment. In determining fair value of goodwill during 2008 we
compared the net book value of the reporting units to current trading multiples of ILEC properties as well as
trading values of our publicly traded common stock. Additionally, we utilized a range of prices to gauge
sensitivity. Our test determined that fair value exceeded book value of goodwill for each of our reporting units.
Depreciation and Amortization
The calculation of depreciation and amortization expense is based on the estimated economic useful lives
of the underlying property, plant and equipment and identifiable intangible assets. An independent study
updating the estimated remaining useful lives of our plant assets is performed annually. We adopted the lives
proposed in the study effective October 1, 2008. Our “composite depreciation rate” increased from 5.5% to
5.6% as a result of the study. We anticipate depreciation expense of approximately $350.0 million to $370.0
million for 2009. We periodically reassess the useful life of our intangible assets to determine whether any
changes to those lives are required.
Pension and Other Postretirement Benefits
Our estimates of pension expense, other postretirement benefits including retiree medical benefits and
related liabilities are “critical accounting estimates.” We sponsor noncontributory defined benefit pension plans
covering a significant number of current and former employees and other postretirement benefit plans that
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES