FairPoint Communications 2003 Annual Report Download - page 36

indicate that a decline in the fair value of the investment has occurred and the decline is other than temporary, the 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 RTB investment pays dividends annually at the discretion of its board of directors.
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Property, plant, and equipment are 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.
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Debt issue costs are being amortized over the life of the related debt, ranging from 3 to 10 years. During 2003, $5.0 million in net book
value of debt issue costs were written off in association with refinancing activity classified as other nonoperating expense in the statements of
operations. Accumulated amortization of loan origination costs from continuing operations was $13.0 million and $10.3 million at
December 31, 2002 and 2003, respectively.
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Goodwill consists of the difference between the purchase price incurred in acquisitions using the purchase method of accounting and the
fair value of net assets acquired.
In accordance with SFAS No. 142,  which the Company adopted effective January 1, 2002,
goodwill is no longer amortized, but instead is assessed for impairment at least annually. During this assessment, management relies on a
number of factors, including operating results, business plans, and anticipated future cash flows. In fiscal year 2001, goodwill was amortized
using the straight-line method over an estimated useful life of 40 years. Accumulated amortization of goodwill at December 31, 2003 and
2002 is $33.7 million.
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Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.
Goodwill and intangible assets not subject to amortization are tested annually for impairment following the adoption of SFAS No. 142.
Prior to the adoption of SFAS No. 142, the Company evaluated the recoverability of goodwill pursuant to Accounting Principles Board
Opinion No. 17, , and used estimates of future cash flows in periodically evaluating goodwill for impairment. An
impairment loss is recognized to the extent that the carrying amount exceeds the asset's estimated fair value.
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Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
FairPoint files a consolidated income tax return with its subsidiaries. FairPoint has a tax sharing agreement in which all of its
subsidiaries are participants. All intercompany tax transactions and accounts have been eliminated in consolidation.
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The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that
may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management
control systems to monitor interest rate cash flow risk attributable to both the Company's outstanding or forecasted debt obligations. The risk
management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected
impact of changes in interest rates on the Company's future cash flows.