FairPoint Communications 2013 Annual Report Download - page 56

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When an asset is retired, the original cost, net of salvage value, is charged against accumulated depreciation and no immediate
gain or loss is recognized on the disposition of the asset. Under this method, we review depreciable lives periodically and may
revise depreciation rates when appropriate. The Company utilizes straight-line depreciation for its non-telephone property, plant
and equipment.
Periodically, the Company reviews the estimated remaining useful lives of its group asset categories to address continuing
changes in technology, competition and the Company’s overall reduction in capital spending and increased focus on more efficient
utilization of its existing assets. In the third quarter of 2013, the Company conducted this review and determined that changes to
the estimated remaining useful lives for certain asset categories were appropriate. Accordingly, as a result of the changes to the
remaining useful lives, depreciation expense in 2013 was approximately $37.0 million less than it would have been absent the
changes, resulting in a reduction in net loss of approximately $39.0 million, or a benefit of $1.49 per share. This change in non-
cash expense had no impact on our compliance with the covenants contained in the New Credit Agreement.
Stock-based Compensation. Compensation expense for share-based awards made to employees and directors are recognized
based on the estimated fair value of each award over the award's vesting period. We estimate the fair value of share-based payment
awards on the date of grant using either an option-pricing model for stock options or the closing market value of our stock for
restricted stock and expense the value of the portion of the award that is ultimately expected to vest over the requisite service
period in the statement of operations.
We utilize the Black-Scholes option pricing model to calculate the fair value of our stock option grants. The key assumptions
used in the Black-Scholes option pricing model are the expected life of the stock option, the expected dividend rate, the risk-free
interest rate and expected volatility. The expected life of the stock options granted represents the period of time that the options
are expected to be outstanding. The risk-free interest rates are based on United States Treasury yields in effect at the date of grant
consistent with the expected exercise timeframes. The expected volatility reflects the historical volatility for a duration consistent
with the contractual life of the options. Our assumptions of these key inputs, in addition to our assumption made about the portion
of the awards that will ultimately vest, requires subjective judgment.
For additional information on share-based awards, including key assumptions used in calculating the grant date fair values,
see note (16) "Stock-Based Compensation" to our consolidated financial statements in "Item 8. Financial Statements and
Supplementary Data" included elsewhere in this Annual Report.
Valuation of Long-lived Assets and Indefinite-lived Intangible Assets. We review our long-lived assets, which include our
amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. In addition, we review non-amortizable intangible assets for impairment on at least an annual basis as of the
first day of the fourth quarter of each year, or more frequently whenever indicators of impairment exist. Indicators of impairment
could include, but are not limited to:
• an inability to perform at levels that were forecasted;
• a permanent decline in market capitalization;
• implementation of restructuring plans;
• changes in industry trends; and/or
• unfavorable changes in our capital structure, cost of debt, interest rates or capital expenditures levels.
No factors signaling a potential impairment were identified during the year ended December 31, 2013. Accordingly, no
impairment review of our long-lived assets was required in 2013.
Our only non-amortizable intangible asset is the FairPoint trade name. As previously discussed, no factors signaling a
potential impairment were identified during the year ended December 31, 2013. As a result, no interim impairment review of our
trade name was necessary. An annual impairment review was performed on October 1, 2013. We assess the fair value of our trade
name utilizing the relief from royalty method. If the carrying amount of our trade name exceeds its estimated fair value, the asset
is considered impaired. For this annual impairment review, we made certain assumptions including an estimated royalty rate, long-
term growth rate, effective tax rate and discount rate and applied these assumptions to projected future cash flows, exclusive of
cash flows associated with wholesale and others revenues not generated through brand recognition. Results of the assessment
indicated that an impairment was not necessary; however, future changes in one or more of these assumptions could result in the
recognition of an impairment loss.
For additional information on our FairPoint trade name, including the impairment charges recorded in the year ended
December 31, 2011 on goodwill and our trade name, see note (6) "Goodwill and Other Intangible Assets" to our consolidated
financial statements in "Item 8. Financial Statements and Supplementary Data" included elsewhere in this Annual Report.