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(l) Net Income Per Common Share Available for Common Shareholders:
Basic net income per common share is computed using the weighted average number of common shares
outstanding during the period being reported on. Except when the effect would be antidilutive, diluted net
income per common share reflects the dilutive effect of the assumed exercise of stock options using the
treasury stock method at the beginning of the period being reported on as well as common shares that would
result from the conversion of convertible preferred stock (EPPICS) and convertible notes. In addition, the
related interest on debt (net of tax) is added back to income since it would not be paid if the debt was
converted to common stock.
(2) Recent Accounting Literature and Changes in Accounting Principles:
Accounting for Endorsement Split-Dollar Life Insurance Arrangements
In September 2006, the FASB reached consensus on the guidance provided by Emerging Issues Task
Force (EITF) No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements.” The guidance is applicable to endorsement split-dollar
life insurance arrangements, whereby the employer owns and controls the insurance policies, that are associated
with a postretirement benefit. EITF No. 06-4 requires that for a split-dollar life insurance arrangement within
the scope of the issue, an employer should recognize a liability for future benefits in accordance with SFAS No.
106 (if, in substance, a postretirement benefit plan exists) or Accounting Principles Board Opinion (APB) No.
12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive
agreement with the employee. EITF No. 06-4 was effective for fiscal years beginning after December 15, 2007.
Our adoption of the accounting requirements of EITF No. 06-4 in the first quarter of 2008 had no impact on
our financial position, results of operations or cash flows.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair
value, establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. In February 2008, the FASB amended SFAS No. 157 to defer the application of this standard
to nonfinancial assets and liabilities until 2009. The provisions of SFAS No. 157 related to financial assets and
liabilities were effective as of the beginning of our 2008 fiscal year. Our adoption of SFAS No. 157 in the first
quarter of 2008 had no impact on our financial position, results of operations or cash flows. We do not expect
the adoption of SFAS No. 157, as amended, in the first quarter of 2009 with respect to its effect on
nonfinancial assets and liabilities to have a material impact on our financial position, results of operations or
cash flows. Nonfinancial assets and liabilities for which we have not applied the provisions of SFAS No. 157
include those measured at fair value in impairment testing and those initially measured at fair value in a
business combination.
The Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities—Including an Amendment of FASB Statement No. 115,” which permits entities to choose
to measure many financial instruments and certain other items at fair value. The provisions of SFAS No. 159
were effective as of the beginning of our 2008 fiscal year. Our adoption of SFAS No. 159 in the first quarter of
2008 had no impact on our financial position, results of operations or cash flows.
Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements
In March 2007, the FASB ratified the consensus reached by the EITF on Issue No. 06-10, “Accounting for
Collateral Assignment Split-Dollar Life Insurance Arrangements.” EITF No. 06-10 provides guidance on an
employers’ recognition of a liability and related compensation costs for collateral assignment split-dollar life
insurance arrangements that provide a benefit to an employee that extends into postretirement periods, and the
F-13
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements