FairPoint Communications 2007 Annual Report Download - page 83

Table of Contents
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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 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 2006.
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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 for
regulated property and equipment is based on a composite depreciation rate. Depreciation for non-regulated property and equipment is
determined using the straight-line method for financial reporting purposes.
The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software in accordance with
American Institute of Certified Public Accountants Statement of Position 98-1, “Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use”, or SOP 98-1. Capitalized costs include direct development costs associated with internal use
software, including direct labor costs and external costs of materials and services. Costs incurred during the preliminary project stage, as
well as maintenance and training costs are expensed as incurred. The Company also capitalizes interest associated with the acquisition or
construction of network-related assets. Capitalized interest is reported as part of the cost of the network-related assets and as a reduction in
interest expense. As of December 31, 2007, the Company had capitalized $21.7 million of costs under SOP 98-1 related to the merger.
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 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.
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Debt issue costs are being amortized over the life of the related debt, ranging from 3 to 10 years. In 2005, the Company entered into a
new senior secured credit facility consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term
facility in an aggregate principal amount of $588.5 million. The Company incurred a total of $11.1 million of debt issuance costs
associated with entering
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