Frontier Communications 2008 Annual Report Download - page 62

(f) Goodwill and Other Intangibles:
Intangibles represent the excess of purchase price over the fair value of identifiable tangible net 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, 2008 that there was no impairment. We test for impairment at the “operating segment” level, as
that term is defined in Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other
Intangible Assets.” The Company currently has four “operating segments” which are aggregated into one
reportable segment.
SFAS No. 142 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 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.
(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 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 arrangements were all terminated on January 15, 2008. These hedge strategies satisfied the fair
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements