FairPoint Communications 2007 Annual Report Download - page 68

Table of Contents
circumstances change or economic conditions worsen such that our past collection experience is no longer relevant, our estimate of the
recoverability of our accounts receivable could be further reduced from the levels reflected in our accompanying consolidated balance
sheet.
 As part of the process of preparing our consolidated financial statements we were required to
estimate our income taxes. This process involves estimating our actual current tax exposure and assessing temporary differences resulting
from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are
included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and to the extent we believe the recovery is not likely, we must establish a valuation allowance. Further, to the extent
that we establish a valuation allowance or increase this allowance in a financial accounting period, we must include a tax provision, or
reduce our tax benefit in our consolidated statement of operations. In performing the assessment, management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. We use our judgment to determine our
provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax
assets.
There are various factors that may cause those tax assumptions to change in the near term. We cannot predict whether future
U.S. federal income tax laws and regulations might be passed that could have a material effect on our results of operations. We assess the
impact of significant changes to the U.S. federal and state income tax laws and regulations on a regular basis and update the assumptions
and estimates used to prepare our financial statements when new regulation and legislation is enacted.
We adopted FASB Interpretation No. (FIN) 48, 
, on January 1, 2007. FIN 48 requires applying a “more likely than not” threshold to the recognition and de-recognition
of tax positions. Our unrecognized tax benefits totaled $3.7 million as of January 1, 2007 and $1.0 million as of December 31, 2007, of
which $1.0 million would impact its effective tax rate, if recognized.
Based on certain assumptions, we had $183.5 million in federal and state NOL carryforwards as of December 31, 2007. 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 NOL carryforwards, 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 carryforwards 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
$136.5 million prior to the expiration of the NOL carryforwards beginning in 2019 through 2025.
 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 $498.7 million at December 31, 2007. We have recorded intangible assets related to the acquired companies’ customer
relationships of $13.8 million and accumulated amortization of $1.5 million as of December 31, 2007. 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 2007.
  We capitalize certain costs incurred in connection with developing or obtaining
internal use software in accordance with American Institute of Certified Public
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