FairPoint Communications 2004 Annual Report Download - page 519

The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the asset exceeds the fair value
of the asset.
The FCC licenses recorded on the books of Cellco are evaluated for impairment, by Cellco, under the guidance set forth in Statement of Financial
Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” The FCC licenses are treated as an indefinite life intangible asset
under the provisions of SFAS No. 142 and are not amortized, but rather are tested for impairment annually or between annual dates, if events or
circumstances warrant. All of the licenses in Cellco’s nationwide footprint are tested in the aggregate for impairment under SFAS No. 142. When testing
the carrying value of the wireless licenses for impairment, Cellco determines the fair value of the aggregated wireless licenses by subtracting from
enterprise discounted cash flows (net of debt) the fair value of all of the other net tangible and intangible assets of Cellco, including previously
unrecognized intangible assets. This approach is generally referred to as the residual method. In addition, the fair value of the aggregated wireless
licenses is then subjected to a reasonableness analysis using public information of comparable wireless carriers. If the fair value of the aggregated
wireless licenses as determined above is less than the aggregated carrying amount of the licenses, an impairment will be recognized by Cellco. Any
impairment loss recognized by Cellco will be allocated to its consolidated subsidiaries based upon a reasonable methodology. Annual impairment tests
were performed by Cellco in 2004, 2003 and 2002 with no impairment recognized.
On September 29, 2004, the SEC issued a Staff Announcement regarding the “Use of the Residual Method to Value Acquired Assets other than
Goodwill.” The Staff Announcement requires SEC registrants to adopt a direct value method of assigning value to intangible assets, including wireless
licenses, acquired in a business combination under SFAS No. 141, “Business Combinations,” effective for all business combinations completed after
September 29, 2004. Further, all intangible assets, including wireless licenses, valued under the residual method prior to this adoption are required to
be tested for impairment using a direct value method no later than the beginning of 2005. Any impairment of intangible assets recognized upon
application of a direct value method by entities previously applying the residual method should be reported as a cumulative effect of a change in
accounting principle. Under this Staff Announcement, the reclassification of recorded balances from wireless licenses to goodwill prior to the adoption
of this Staff Announcement is prohibited. Cellco has evaluated its wireless licenses for potential impairment using a direct value methodology effective
January 1, 2005. The valuation and analyses prepared in connection with the adoption of a direct value method resulted in no adjustment to the
carrying value of it’s wireless licenses, and accordingly, had no effect on its results of operations and financial position. Future tests for impairment will
be performed by Cellco at least annually and more often if events or circumstances warrant.
Concentrations - To the extent the Partnership’s customer receivables become delinquent, collection activities commence. The General Partner accounts
for 80.4% and 88.8% of the accounts receivable balance at December 31, 2004, and 2003 respectively. The Partnership maintains an allowance for
losses based on the expected collectibility of accounts receivable.
Approximately 98% of the Partnership’s 2004, 2003 and 2002 revenue is affiliate revenue.
The General Partner relies on local and long-distance telephone companies, some of whom are related parties, and other companies to provide certain
communication services. Although management believes alternative telecommunications facilities could be found in a timely manner, any disruption of
these services could potentially have an adverse impact on the Partnership’s operating results.
Although the General Partner attempts to maintain multiple vendors for equipment, which are important components of its operations, they are currently
acquired from only a few sources. Certain of these products are in turn utilized by the Partnership and are important components of the Partnership’s
operations. If the suppliers are unable to meet the General Partner’s needs as it builds out its network
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