FairPoint Communications 2010 Annual Report Download - page 89

Table of Contents
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.
While no impairment charges resulted from the analyses performed at October 1, 2010, asset values may be adjusted in the future due to the application of
fresh start accounting upon the Company’s emergence from Chapter 11.
The Company’s amortizable intangible assets consist of customer lists and a non-compete agreement. Amortizable intangible assets must be reviewed for
impairment whenever indicators of impairment exist. See note 3(j) above.
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Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
FairPoint files a consolidated income tax return with its subsidiaries. FairPoint has a tax-sharing agreement in which all subsidiaries are participants. All
intercompany tax transactions and accounts have been eliminated in consolidation.
The Income Taxes Topic of the ASC requires applying a “more likely than not” threshold to the recognition and de-recognition of tax positions. The
Company’s unrecognized tax benefits totaled $5.4 million as of January 1, 2010 and $5.4 million as of December 31, 2010, of which $2.0 million would
impact its effective tax rate, if recognized.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. During non-bankruptcy periods, the ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management determines its estimates of future taxable income based upon
the scheduled reversal of deferred tax liabilities, projected future taxable income exclusive of reversing temporary differences, and tax planning strategies. The
Company establishes valuation allowances for deferred tax assets when it is estimated to be more likely than not that the tax assets will not be realized. Based
upon the Chapter 11 reorganization, management believes it can support the realizability of its deferred tax asset only by the scheduled reversal of its deferred
tax liabilities and can no longer rely upon the projection of future taxable income.
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The Company accounts for its stock-based compensation plans in accordance with the Compensation-Stock Compensation Topic of the ASC, which
establishes accounting for stock-based awards granted in exchange for employee services. Accordingly, for employee awards which are expected to vest, stock-
based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the
requisite service period, which generally begins on the date the award is granted through the date the award vests. The Company elected to adopt the provisions
of the Compensation-Stock Compensation Topic of the ASC using the prospective application method for awards granted prior to becoming a public company
and valued using the minimum value method, and using the modified prospective application method for awards granted subsequent to becoming a public
company.
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The Company accounts for pensions and other post-retirement benefit plans in accordance with the Compensation-Retirement Benefits Topic of the ASC.
This Topic requires the recognition of a defined benefit post-retirement plan’s funded status as either an asset or liability on the balance sheet. This Topic also
requires the immediate recognition of the unrecognized actuarial gains and losses and prior service costs and credits that arise during the period as a component
of other accumulated comprehensive income, net
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