FairPoint Communications 2009 Annual Report Download - page 118

Table of Contents
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Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a
task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred.
In addition, the Company capitalizes the interest cost associated with the period of time over which the Company's internal use software is
developed or obtained in accordance with the Interest Topic of the ASC. The Company has not capitalized interest costs incurred subsequent to the
filing of the Chapter 11 Cases, as payments on all interest obligations have been stayed as a result of the filing of the Chapter 11 Cases.
On January 15, 2007, FairPoint entered into the Master Services Agreement (the "MSA"), with Capgemini U.S. LLC. Through the MSA, the
Company replicated and/or replaced certain existing Verizon systems during a phased period through January 2009. As of June 30, 2009, the Company
had completed the application development stage of the project and was no longer capitalizing costs in accordance with the Intangibles-Goodwill and
Other Topic of the ASC. The Company has recognized both external and internal service costs associated with the MSA based on total labor incurred
through the completion of the application development stage. As of December 31, 2009, the Company had capitalized $107.0 million of MSA costs and
an additional $6.9 million of interest costs.
In addition to the MSA, the Company has other agreements and projects for which costs are capitalized in accordance with the Intangibles
—Goodwill and Other Topic and the Interest Topic of the ASC. During the year ended December 31, 2009, the Company capitalized $19.4 million in
software costs in addition to those capitalized under the MSA. During the year ended December 31, 2009, the Company capitalized $2.5 million in
interest costs in addition to those capitalized under the MSA.
As of December 31, 2008, the Company had capitalized $94.6 million of costs under the Intangibles—Goodwill and Other Topic of the ASC and
$5.9 million of interest costs under the Interest Topic of the ASC.
(l) Debt Issue Costs
On March 31, 2008, immediately prior to the Merger, Legacy FairPoint and Spinco entered into the Pre-petition Credit Facility, consisting of the
Revolving Credit Facility, the Term Loan and the Delayed Draw Term Loan. The Company incurred $29.2 million of debt issue costs associated with
these credit facilities and began to amortize these costs over the life of the related debt, ranging from 6 to 7 years using the effective interest method.
On January 21, 2009, the Company entered into the Pre-petition Credit Facility Amendment under which, among other things, the administrative
agent resigned and was replaced by a new administrative agent. In addition, the resigning administrative agent's undrawn loan commitments under the
Revolving Credit Facility, totaling $30.0 million, were terminated and are no longer available to the Company. The Company incurred $0.5 million of
debt issue costs associated with the Pre-petition Credit Facility Amendment and began to amortize these costs over the remaining life of the loan.
Concurrent with the Pre-petition Credit Facility Amendment, the Company wrote off $0.8 million of the unamortized debt issue costs associated
with the original Pre-petition Credit Facility, in accordance with the Debt—Modifications and Extinguishments Topic of the ASC.
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