Frontier Communications 2010 Annual Report Download - page 71

(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 from treasury upon the grant of restricted shares and the
exercise of options.
The compensation cost recognized is based on awards ultimately expected to vest. U.S. GAAP requires
forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates.
(l) Net Income Per Common Share Attributable to 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, excluding unvested restricted stock awards. The impact of
dividends paid on unvested restricted stock awards have been deducted in the determination of basic and
diluted net income attributable to common shareholders of Frontier. 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 convertible 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:
Business Combinations:
Business combinations are accounted for utilizing the guidance of Accounting Standards Codification
(ASC) Topic 805, formerly Statement of Financial Accounting Standards (SFAS) No. 141R, as amended by
FSP SFAS No. 141(R)-1 which became effective on January 1, 2009. ASC Topic 805 requires an acquiring
entity in a transaction to recognize all of the assets acquired and liabilities assumed at fair value at the
acquisition date, to recognize and measure preacquisition contingencies, including contingent consideration, at
fair value (if possible), to remeasure liabilities related to contingent consideration at fair value in each
subsequent reporting period and to expense all acquisition related costs. We are accounting for our July 1, 2010
acquisition of approximately 4.0 million access lines from Verizon Communications Inc. (Verizon) (the
Transaction or the Merger) using the guidance included in ASC Topic 805. We incurred approximately $137.1
million and $28.3 million of acquisition and integration related costs in connection with the Transaction during
2010 and 2009, respectively. Such costs are required to be expensed as incurred and are reflected in
“Acquisition and integration costs” in our consolidated statements of operations.
(3) Acquisitions:
The Transaction:
On July 1, 2010, Frontier acquired the defined assets and liabilities of the local exchange business and
related landline activities of Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina,
Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin and in portions of California
bordering Arizona, Nevada and Oregon (collectively, the Territories), including Internet access and long
distance services and broadband video provided to designated customers in the Territories (the Acquired
Business). Frontier is considered the accounting acquirer of the Acquired Business.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements