FairPoint Communications 2010 Annual Report Download - page 87

Table of Contents
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. Upon entry into the $1,075.0 million senior
secured credit facility with a syndicate of lenders and Bank of America, N.A., as the administrative agent for the lenders, arranged by Banc of America
Securities LLC (the “Exit Credit Agreement”) on the Effective Date, the Company resumed capitalization of interest costs.
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, 2010, 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 years ended December 31, 2010 and 2009, the Company capitalized $12.6 million and
$19.4 million, respectively, 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. The Company did not capitalize any interest costs during the year
ended December 31, 2010.
As of December 31, 2010 and 2009, the Company had capitalized $139.0 million and $126.4 million, respectively, of costs under the Intangibles —
Goodwill and Other Topic of the ASC and $9.4 million of interest costs under the Interest Topic of the ASC.
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On March 31, 2008, immediately prior to the Merger, Legacy FairPoint and Spinco entered into the Credit Agreement, dated as of March 31, 2008 (“Pre-
Petition Credit Facility”), consisting of the Revolving Credit Facility, the Term Loan (defined as a senior secured term loan A facility in an aggregate principal
amount of $500.0 million (the “Term Loan A Facility”) and a senior secured term loan B facility in the aggregate principal amount of $1,130.0 million (the
“Term Loan B Facility”)) and the delayed draw term loan facility in an aggregate principal amount of $200.0 million (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 an amendment to our Pre-Petition Credit Facility (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.
In connection with the accrued and unpaid interest on the 13 1/8% Senior Notes due April 1, 2018 (the “Old Notes”) exchanged in connection with the
Company’s offer to exchange the Old Notes for the 13 1/8% Senior Notes due April 2, 2018 (the “New Notes”) (the “Exchange Offer”) consummated on
July 29, 2009, the Company paid a cash consent fee of $1.6 million in the aggregate to holders of the Old Notes who validly delivered and did not revoke
consents in the related consent solicitation prior to a specified early consent deadline, which amount was equal to $3.75 in cash per $1,000 aggregate principal
amount of the Old Notes exchanged in the Exchange Offer. Pursuant to the Debt Topic of the ASC, this consent fee was capitalized and the Company began to
amortize these costs over the life of the New Notes using the effective interest method.
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