FairPoint Communications 2011 Annual Report Download - page 97

Table of Contents
On the Effective Date, the Company recorded a $58.0 million non-amortizable intangible asset related to the FairPoint trade name in connection with the
Company’s adoption of fresh start accounting.
At September 30, 2011, as a result of the significant sustained decline in the Company’s stock price since the Effective Date which has caused the
Company’s market capitalization to be below its book value, the Company determined that a possible impairment of the FairPoint trade name was indicated
and concluded that an interim impairment test was necessary. Results of the impairment test required the Company to record an impairment charge totaling
$18.8 million at September 30, 2011. Since this interim impairment test was performed on the last day of the 2011 third fiscal quarter, it effectively served as
the Company’s 2011 annual non-amortizable intangible asset impairment test for the fiscal year. As of December 31, 2011, the Company performed its routine
review of impairment triggering events specified by the Intangibles – Goodwill and Other Topic of the ASC and concluded that it did not believe a triggering
event has occurred. At December 31, 2011, the Company’s trade name is recorded at $39.2 million.
The trade name impairment falls within Level 3 of the fair value hierarchy (see note 18), due to the use of significant unobservable inputs to determine
fair value. The fair value measurement was calculated using unobservable inputs, using the relief from royalty method.
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The Company’s amortizable intangible assets consist of customer lists and favorable leasehold agreements. Amortizable intangible assets must be
reviewed for impairment whenever indicators of impairment exist. See note 3(j) above.
(o) Accounting for Income Taxes
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. All intercompany tax transactions and accounts have been eliminated in
consolidation.
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. 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 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.
(p) Stock-based Compensation Plans
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. Compensation expense associated with the
stock-based compensation plans is included in other non cash items on the consolidated statement of cash flows.
(q) Employee Benefit Plans
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 post-retirement benefit 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
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