FairPoint Communications 2013 Annual Report Download - page 71

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fair value of plan assets could result in additional Company contributions to the qualified pension plans in order to meet funding
requirements under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). For additional information
regarding the plan assets of the Company's qualified pension plans, including the December 31, 2013 balance at risk, see note (11)
"Employee Benefit Plans" herein.
(f) Property, Plant and Equipment
In connection with the Company's adoption of fresh start accounting on the Effective Date (as defined hereinafter in note
(4) "Reorganization Under Chapter 11"), accumulated depreciation was reset to zero and the net carrying value of the Company's
existing property, plant and equipment assets were revalued to their fair value, generally their appraised value after considering
economic obsolescence. New remaining useful asset lives were established for each asset ranging from two to twenty-three years.
Given that a majority of the Company's property, plant and equipment is plant used in the Company's wireline and next
generation networks, depreciation is principally based on the composite group remaining life method and straight-line composite
rates. This methodology provides for the recognition of the cost of the remaining net investment in telephone plant, property and
equipment less anticipated positive net salvage value, over the remaining asset lives. When depreciable telephone plant is replaced
or retired, the carrying amount of such plant is deducted from the respective accounts and charged to accumulated depreciation.
No gain or loss is recognized on disposition of assets. Use of this methodology requires the periodic revision of depreciation rates.
In the evaluation of asset lives, multiple factors are considered, including, but not limited to, the ongoing network deployment,
technology upgrades and enhancements, planned retirements and the adequacy of reserves. 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.
Network software purchased or developed in connection with related plant assets is capitalized. The Company also capitalizes
interest associated with the acquisition or construction of network related assets. Capitalized interest is reported as part of the cost
of the network related assets and as a reduction in interest expense. See "—(i) Computer Software and Interest Costs" herein for
additional information.
(g) Long-Lived Assets
Property, plant and equipment and intangible assets subject to amortization are reviewed for impairment as required by the
Property, Plant and Equipment Topic of the accounting standards codification ("ASC") and the Intangibles—Goodwill and Other
Topic of the ASC. These assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying
amounts may not be recoverable. An impairment charge is recognized for the amount, if any, by which the carrying value of the
asset exceeds its fair value.
As of December 31, 2013, the Company performed its routine review of impairment triggering events specified by the
Property, Plant and Equipment Topic of the ASC and concluded that it does not believe a triggering event has occurred.
(h) Asset Retirement Obligations
The Company records the estimated fair value of an asset retirement obligation when incurred. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-lived asset and depreciated over the asset's estimated
useful life. The Company has asset retirement obligations related to battery, fuel tank and chemically-treated pole disposal as well
as soil remediation at leased facilities. Considerable management judgment is required in estimating these obligations. Important
assumptions include estimates of retirement costs, the timing of the future retirement activities and the likelihood or retirement
provisions being enforced. Changes in these assumptions based on future information could result in adjustments to estimated
liabilities.
(i) Computer Software and Interest Costs
The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software which has
a useful life in excess of one year in accordance with the Intangibles—Goodwill and Other Topic of the ASC. Capitalized costs
include direct development costs associated with internal use software, including direct labor costs and external costs of materials
and services.