FairPoint Communications 2006 Annual Report Download - page 67

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Company records the decline in value as a realized impairment loss and a reduction in the cost of the investment.
The Company currently receives patronage dividends from its investments in businesses organized as cooperatives for Federal income tax purposes
(CoBank and RTFC stock). Patronage dividends represent cash distributions of the cooperative’s earnings and notices of allocations of earnings to the
Company. Deferred and uncollected patronage dividends are included as part of the basis of the investment until collected. The Company’s investment in the
Rural Telephone Bank (RTB) paid dividends annually at the discretion of its board of directors. The investment in the RTB was liquidated in April of 2006.
(h) Property, Plant, and Equipment
Property, plant, and equipment is carried at cost. Repairs and maintenance are charged to expense as incurred and major renewals and improvements are
capitalized. For traditional telephone companies, the original cost of depreciable property retired, together with removal cost, less any salvage realized, is
charged to accumulated depreciation. For all other companies, the original cost and accumulated depreciation are removed from the accounts and any gain or
loss is included in the results of operations. Depreciation is determined using the straight-line method for financial reporting purposes.
In 2005 and 2004, the Company developed and implemented, with CSG Systems, Inc., an integrated end-user billing system. The costs to develop the
system were accounted for in accordance with Statement of Position 98-1, 
 or SOP 98-1Aggregate capitalized costs (before accumulated amortization) totaled $8.6 million (of which, $5.1 million was capitalized in
2004), of which the majority represents payments for license fees and third-party consultants. As a result of the Company’s decision to convert to a new end-
user billing system in November 2005, the capitalized costs associated with the CSG Systems, Inc. billing system was amortized over its remaining useful
life which was estimated to be 8 months (reduced from 5 years).
In November 2005, the Company reached an agreement with CSG Systems, Inc. in which the Company received total compensation from CSG
Systems, Inc. of $5.1 million in order to relieve it from its responsibilities under the original service bureau contract. The Company recorded the $5.1 million
as a deferred credit which was amortized over the remaining life of the CSG contract (8 months). When amortized, a portion of the credit offset depreciation
expenses and a portion offset billing expenses. Of this deferred credit, $1.3 million was recognized in 2005 and $3.8 million was recognized in 2006.
As of December 31, 2006, the Company has incurred costs to develop and implement the new billing system. The costs to develop the new billing
system were accounted for in accordance with SOP 98-1. As of December 31, 2006, aggregate capitalized costs (before accumulated amortization) totaled $2.3
million (of which, $0.1 million was capitalized in 2005), of which the majority represents payments for license fees and third-party consultants. These
capitalized billing system costs will be amortized over its estimated useful life of 5 years.
(i) Debt Issue Costs
Debt issue costs are being amortized over the life of the related debt, ranging from 3 to 10 years. During 2004, the Company wrote-off debt issuance and
offering costs of $6.0 million associated with an abandoned offering of Income Deposit Securities (IDSs), classified as other nonoperating expense in the
statements of operations. The offering of IDSs was abandoned in December of 2004 in favor of the transactions described in note 2. In 2005, the Company
entered into a new senior secured credit facility
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