Frontier Communications 2012 Annual Report Download - page 38

carrier services, whereby the Company committed to a minimum number of minutes of use and circuits. Our
total commitments under the arrangement are $132.0 million, $141.8 million and $140.8 million for the years
ended December 31, 2013, 2014 and 2015, respectively. As of December 31, 2012, we expect to utilize the
services included within the arrangement and no liability for the take or pay provision has been recorded.
The Company has entered into an agreement to upgrade a significant portion of its existing vehicle fleet.
As of December 31, 2012, the Company has accepted delivery of 2,150 new vehicles and expects to accept
delivery of 1,614 additional new vehicles by March 31, 2013. The new vehicles expected to be leased under
this program will represent approximately 50% of our vehicle fleet. The minimum lease commitment for each
vehicle is 1 year and the leases are renewable at the Company’s option. The total annual lease expense for all
of the new vehicles is expected to be approximately $30.0 million on an annualized basis upon the acceptance
of the remaining vehicles.
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 in conformity with U.S. GAAP 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 revenue recognition, impairment of
long-lived assets, impairment of 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.
Revenue Recognition
Revenue is recognized when services are provided or when products are delivered to customers. Revenue
that is billed in advance includes: monthly recurring network access services, special access services and
monthly recurring local voice, features, long distance and inside wire charges. The unearned portion of these
fees is initially deferred as a component of other liabilities on our consolidated balance sheet and recognized as
revenue over the period that the services are provided. Revenue that is billed in arrears includes: non-recurring
network access services, switched access services, non-recurring local services and long-distance services. The
earned but unbilled portion of these fees is recognized as revenue in our consolidated statements of operations
and accrued in accounts receivable in the period that the services are provided. Excise taxes are recognized as a
liability when billed. Installation fees and their related direct and incremental costs are initially deferred and
recognized as revenue and expense over the average term of a customer relationship. We recognize as current
period expense the portion of installation costs that exceeds installation fee revenue.
We maintain an allowance for estimated bad debts based on our estimate of our ability to collect accounts
receivable through a review of aging categories and specific customer accounts. In 2012 and 2011, we had no
“critical estimates” related to bankruptcies of telecommunications companies or any other customers.
Asset Impairment
We review long-lived assets to be held and used, including customer lists, and long-lived assets to be
disposed of 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
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES