FairPoint Communications 2005 Annual Report Download - page 241

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.
As discussed above, the FCC license under which the Partnership operates is recorded on the books of Cellco. Cellco does not charge the Partnership for
the use of any FCC license recorded on its books. However, Cellco believes that under the Partnership agreement it has the right to allocate, based on a
reasonable methodology, any impairment loss recognized by Cellco for all licenses included in Cellco’s national footprint. Accordingly, the FCC licenses,
including the license under which the Partnership operates, 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 on the books of Cellco 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 in 2004 and 2003 for impairment,
Cellco determined 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 was 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 was less than the aggregated carrying amount of the
licenses, an impairment would have been recognized by Cellco and then may have been allocated to the Partnership. During 2004 and 2003, tests for
impairment were performed with no impairment recognized.
On September 29, 2004, the SEC issued a Staff Announcement No. D-108, “Use of the Residual Method to Value Acquired Assets other than Goodwill.”
This 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 evaluated its wireless licenses for potential impairment using a direct value methodology as of January 1, 2005 and December 15, 2005 in
accordance with SEC Staff Announcement No. D-108. The valuation and analyses prepared in connection with the adoption of a direct value method and
subsequent revaluation resulted in no adjustment to the carrying value of Cellco’s wireless licenses and, accordingly, had no effect on its financial
statements. Future tests for impairment will be performed 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 83.8% and 80.4% of the accounts receivable balance at December 31, 2005, and 2004 respectively. The Partnership maintains an allowance for losses,
as necessary, based on the expected collectibility of accounts receivable.
Approximately 98% of the Partnership’s 2005, 2004 and 2003 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
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