FairPoint Communications 2010 Annual Report Download - page 86

Table of Contents
When depreciable telephone plant used in the Company’s wireline network is replaced or retired, the carrying amount of such plant is deducted from the
respective accounts and charged to accumulated depreciation. No gain or loss is recognized on disposition of such assets.
Network software purchased or developed in connection with related plant assets is capitalized. 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. See note 3(k).
Periodically, the Company reviews the estimated useful lives of property, plant, and equipment along with the associated depreciation rates. Effective
January 1, 2009, the depreciation rates of copper cable and certain central office equipment were decreased to reflect the change in distribution of assets within
these classes. As a result, depreciation expense decreased by approximately $28.0 million in 2009 compared to 2008.
Effective January 1, 2008, the life of fiber cable was increased to 25 years from a previous life of 20 years. As a result, depreciation expense decreased by
approximately $2.4 million in 2008 compared to 2007. This change was based on a review of the physical mortality of fiber cable and the Company’s long-
term strategy for use of fiber cable, as well as a lack of technology-driven substitutes.
The Company believes that current estimated useful asset lives are reasonable, although they are subject to regular review and analysis. In the evaluation of
asset lives, multiple factors are considered, including, but not limited to, the ongoing network deployment, technology upgrades and enhancements, planned
retirements and the adequacy of reserves.
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Property, plant and equipment and intangible assets subject to amortization are reviewed for impairment as required by the Property, Plant, and Equipment
Topic of the ASC and the Intangibles Topic of the ASC. These assets are tested for recoverability whenever events or changes in circumstances indicate that
their carrying amounts may not be recoverable. An impairment charge is recognized for the amount, if any, by which the carrying value of the asset exceeds its
fair value.
The Company 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 the Old Common Stock. In addition, as of December 31, 2010, as a result of changes to the Company’s
financial projections related to the Chapter 11 Cases, the Company determined that a possible impairment of long-lived assets was indicated. In accordance
with the Property, Plant, and Equipment Topic of the ASC, the Company performed recoverability tests, based on undiscounted projected future cash flows
associated with its long-lived assets, at each of these dates and determined that long-lived assets were not impaired at December 31, 2010 or 2009.
While no impairment charges resulted from the analyses performed at December 31, 2010 and 2009, asset values may be adjusted in the future due to the
application of fresh start accounting upon the Company’s emergence from Chapter 11.
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The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software which has a useful life in excess of one
year 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.
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.
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