FairPoint Communications 2013 Annual Report Download - page 72

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Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow
the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period
in which they are incurred.
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 defined hereinafter in note (4) "Reorganization Under Chapter
11"), as payments on all interest obligations had been stayed as a result of the filing of the Chapter 11 Cases (as defined hereinafter
in note (4) "Reorganization Under Chapter 11"). Upon entry into the Old Credit Agreement (as defined hereinafter in note (4)
"Reorganization Under Chapter 11") on the Effective Date (as defined hereinafter in note (4) "Reorganization Under Chapter 11"),
the Company resumed capitalization of interest costs.
During the year ended December 31, 2013, the year ended December 31, 2012, the 341 days ended December 31, 2011 and
the 24 days ended January 24, 2011, the Company capitalized $20.0 million, $9.5 million, $12.1 million and $1.3 million,
respectively, in software costs. The Company capitalized $0.1 million, $0.1 million and $0.2 million, respectively, in interest costs
for the year ended December 31, 2013, the year ended December 31, 2012 and the 341 days ended December 31, 2011. No interest
costs were capitalized for the 24 days ended January 24, 2011.
As of the year ended December 31, 2013, the gross value and accumulated depreciation of the capitalized software was
$135.0 million and $104.0 million, respectively. As of the year ended December 31, 2012 the gross value and accumulated
depreciation of the capitalized software was $114.4 million and $87.9 million, respectively. During the year ended December 31,
2013, the year ended December 31, 2012, the 341 days ended December 31, 2011 and the 24 days ended January 24, 2011,
amortization expense on the capitalized software was $15.4 million, $47.2 million, $41.3 million and $2.9 million, respectively,
and is expected to be $9.3 million in 2014, $9.3 million in 2015, $5.9 million in 2016, $4.9 million in 2017 and $1.7 million in
2018, respectively.
(j) Impairment of Goodwill and Other Intangible Assets
Goodwill. Upon the Effective Date (as defined hereinafter in note (4) "Reorganization Under Chapter 11"), the Company's
goodwill consisted 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 was not amortized, but was assessed for impairment at
least annually. The Company historically performed its annual impairment test as of the first day of the fourth fiscal quarter of
each year. At September 30, 2011, the Company wrote off the entire balance of goodwill. See note (6) "Goodwill and Other
Intangible Assets" herein for further information on the impairment test and write-off.
Indefinite-lived Intangible Asset. In accordance with the Intangibles—Goodwill and Other Topic of the ASC, non-
amortizable intangible assets are 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 and assesses the fair value of the trade name based on the relief from royalty
method. If the carrying amount of the trade name exceeds its estimated fair value, the asset is considered impaired.
For its non-amortizable intangible asset impairment assessments of the FairPoint trade name, the Company makes certain
assumptions including an estimated royalty rate, a long-term growth rate, an effective tax rate and a discount rate, and applies
these assumptions to projected future cash flows, exclusive of cash flows associated with wholesale revenues as these revenues
are not generated through brand recognition. Changes in one or more of these assumptions may result in the recognition of an
impairment loss different from what was actually recorded.
Amortizable Intangible Assets. Amortizable intangible assets must be reviewed for impairment as part of long-lived assets
whenever indicators of impairment exist. See "—(g) Long-Lived Assets" herein for additional information.
(k) Accounting for Income Taxes
In accordance with the Income Taxes Topic of the ASC, 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.
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