Frontier Communications 2008 Annual Report Download - page 63

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value hedging requirements of SFAS No. 133, as amended. As a result, the appreciation in value of the swaps
through the time of termination is included in the consolidated balance sheet and is recognized as lower interest
expense over the duration of the remaining life of the underlying debt.
(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.
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 previously calculated for pro
forma disclosure purposes.
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.
The compensation cost recognized is based on awards ultimately expected to vest. SFAS No. 123R
requires forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates.
F-12
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements