FairPoint Communications 2011 Annual Report Download - page 95

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 did not capitalize interest costs incurred during the pendency of the Chapter 11
Cases, as payments on all interest obligations had been stayed as a result of the filing of the Chapter 11 Cases. Upon entry into the Credit Agreement on the
Effective Date, the Company resumed capitalization of interest costs.
During the 341 days ended December 31, 2011 and the 24 days ended January 24, 2011, the Company capitalized $12.1 million and $1.3 million,
respectively, in software costs and $0.2 million in interest costs for the 341 days ended December 31, 2011. No interest costs were capitalized for the 24 days
ended January 24, 2011.
As of the years ended December 31, 2011 and 2010, the gross value and accumulated depreciation of the capitalized software was $107.0 million and
$41.3 million, respectively, and $226.9 million and $106.7 million, respectively. During the 341 days ended December 31, 2011, the 24 days ended
January 24, 2011 and the years ended December 31, 2010 and 2009, amortization expense on the capitalized software was $41.3 million, $2.9 million, $43.0
million and $37.9 million, respectively, and is expected to be $45.5 million in 2012, $15.7 million in 2013, $1.5 million in 2014, $1.5 million in 2015 and
$1.4 million in 2016, respectively.
Upon the Effective Date, a fresh start adjustment of $29.7 million was made to record capitalized software at its estimated fair value.
(l) Debt Issue Costs
The Company entered into the DIP Credit Agreement on October 27, 2009. The Company incurred $0.9 million of debt issue costs associated with the
DIP Credit Agreement and began to amortize these costs over the nine-month life of the DIP Credit Agreement using the effective interest method. Concurrent
with the final order of the Bankruptcy Court, dated March 11, 2010 (the “Final DIP Order”), the Company incurred an additional $1.1 million of debt issue
costs associated with the DIP Credit Agreement and began to amortize these costs over the remaining life of the DIP Credit Agreement using the effective interest
method. On October 22, 2010, the Company incurred an additional $0.4 million of debt issue costs to extend the DIP Credit Agreement through January 2011.
The Company has amortized these costs over the extended life of the DIP Credit Agreement.
On the Effective Date, the Company entered into the Credit Agreement. The Company incurred $2.4 million of debt issue costs associated with the
Credit Agreement and began to amortize these costs over a weighted average life of 3.7 years using the effective interest method.
As of December 31, 2011 and 2010, the Company had capitalized debt issue costs of $1.8 million and $0.1 million, respectively, net of amortization.
(m) Advertising Costs
Advertising costs are expensed as they are incurred.
(n) Goodwill and Other Intangible Assets

As of December 31, 2010, goodwill consisted of the difference between the purchase price incurred in the acquisition of Telecom Group (FairPoint
Communications, Inc. exclusive of the local exchange business acquired from Verizon and its subsidiaries after giving effect to the Merger (the “Northern New
England operations”)), using the purchase method of accounting and the fair value of net assets acquired. Upon the Effective Date, goodwill consists of the
difference between the reorganization value of the predecessor company and the fair value of net assets using the acquisition method of accounting for business
combinations in the Business Combinations Topic of the ASC. In accordance with the Intangibles – Goodwill and Other Topic of the ASC goodwill is not
amortized, but is assessed for impairment at least annually. The Company performs its annual impairment test as of the first day of the fourth fiscal quarter
of each year.
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