FairPoint Communications 2006 Annual Report Download - page 54

Based on certain assumptions, we had $235.1 million in federal and state net operating loss carry forwards as of December 31, 2006. In February 2005,
we completed our initial public offering which resulted in an “ownership change” within the meaning of the U.S. federal income tax laws addressing net
operating loss carry forwards, alternative minimum tax credits and other similar tax attributes. As a result of such ownership change, there will be specific
limitations on our ability to use our NOL carry forwards and other tax attributes. In order to fully utilize the deferred tax assets, mainly generated by the
NOLs, we will need to generate future taxable income of approximately $165.2 million prior to the expiration of the NOL carry forwards beginning in 2019
through 2025.
Valuation of long-lived assets, including goodwill.We review our long-lived assets, including goodwill for impairment whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. Several factors could trigger an impairment review such as:
· significant underperformance relative to expected historical or projected future operating results;
· significant regulatory changes that would impact future operating revenues;
· significant negative industry or economic trends; and
· significant changes in the overall strategy in which we operate our overall business.
Goodwill was $499.2 million at December 31, 2006. We have recorded intangible assets related to the acquired companies’ customer relationships of $13.8
million. These intangible assets are being amortized over 15 years. The intangible assets are included in Intangible Assets on our consolidated balance sheet.
We are required to perform an annual impairment review of goodwill as required by SFAS No. 142, “Goodwill and Other Intangible Assets”. No
impairment of goodwill resulted from the annual valuation of goodwill in 2006.
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In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income
Taxes.” FIN 48 requires applying a “more likely than not” threshold to the recognition and de-recognition of tax positions. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We have determined that the impact of the adoption of this interpretation will not have a material impact on our financial
position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 is definitional and disclosure oriented and addresses
how companies should approach measuring fair value when required by generally accepted accounting principles, or GAAP; it does not create or modify any
current GAAP requirements to apply fair value accounting. SFAS No. 157 provides a single definition for fair value that is to be applied consistently for all
accounting applications, and also generally describes and prioritizes according to reliability the methods and inputs used in valuations. The new measurement
and disclosure requirements of SFAS No. 157 are effective for us in the first quarter 2008. We do not expect a significant impact from adopting SFAS
No. 157.
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying
Misstatements in Current Year Financial Statements”, which provides interpretive guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement. We were required to adopt the provisions of SAB No. 108 in our financial
statements for the fiscal year ended December 31, 2006. The adoption of SAB No. 108 did not have an impact on our consolidated financial statements.
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