FairPoint Communications 2009 Annual Report Download - page 84

Table of Contents
trade name has an indefinite life and is, therefore, not amortized. The intangible assets are included in intangible assets on our consolidated balance
sheet.
We are required to perform an impairment review of goodwill and non-amortizable intangible assets as required by the Intangibles-Goodwill and
Other Topic of the ASC annually or when impairment indicators are noted. Goodwill impairment is determined using a two-step process. Step one
compares the estimated fair value of our single wireline reporting unit (calculated using the market approach and the income approach) to its carrying
amount, including goodwill. The market approach compares our fair value, as measured by our market capitalization, to our carrying amount, which
represents our shareholders' equity balance. As of December 31, 2009, shareholders' deficit totaled $218.4 million. The income approach compares our
fair value, as measured by discounted expected future cash flows, to our carrying amount. If our carrying amount exceeds our estimated fair value, there
is a potential impairment and step two must be performed.
Step two compares the implied fair value of our goodwill (i.e., our fair value less the fair value of our assets and liabilities, including identifiable
intangible assets) to our goodwill carrying amount. If the carrying amount of our goodwill exceeds the implied fair value of our goodwill, the excess is
required to be recorded as an impairment.
We performed step one of our annual goodwill impairment assessment as of October 1, 2009 and concluded that there was no indication of
impairment at that time. In light of the Chapter 11 Cases, we performed an interim goodwill impairment assessment as of December 31, 2009 and
determined that goodwill was not impaired.
Our only non-amortizable intangible asset is the trade name of Legacy FairPoint acquired in the Merger. Consistent with the valuation
methodology used to value the trade name at the Merger, we assess the fair value of the trade name based on the relief from royalty method. If the
carrying amount of our trade name exceeds its estimated fair value, the asset is considered impaired. We performed our annual non-amortizable
intangible asset impairment assessment as of October 1, 2009 and concluded that there was no indication of impairment at that time. In light of the
Chapter 11 Cases, we performed an interim non-amortizable intangible asset impairment assessment as of December 31, 2009 and determined that our
trade name was not impaired.
For our non-amortizable intangible asset impairment assessments at October 1, and December 31, 2009, we made certain assumptions including an
estimated royalty rate, an effective tax rate and a discount rate, and applied these assumptions to projected future cash flows of our consolidated
FairPoint Communications, Inc. business, exclusive of cash flows associated with wholesale revenues as these revenues are not generated through
brand recognition. Changes in one or more of these assumptions may have resulted in the recognition of an impairment loss.
We determined as of December 31, 2009 that a possible impairment of long-lived assets was indicated by the filing of the Chapter 11 Cases as well
as a significant decline in the fair value of our common stock. In accordance with the Property, Plant, and Equipment Topic of the ASC, we performed a
recoverability test, based on undiscounted projected future cash flows associated with our long-lived assets, and determined that long-lived assets were
not impaired at that time.
While no impairment charges resulted from the analyses performed at October 1, and December 31, 2009, asset values may be adjusted in the
future due to the outcome of the Chapter 11 Cases or the application of "fresh start" accounting upon the Company's emergence from Chapter 11.
Accounting for Software Development Costs. We capitalize certain costs incurred in connection with developing or obtaining internal use
software in accordance with the Intangibles-Goodwill and Other Topic of the ASC. 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.
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