FairPoint Communications 2013 Annual Report Download - page 73

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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.
FairPoint Communications files a consolidated income tax return with its subsidiaries. All intercompany tax transactions
and accounts have been eliminated in consolidation.
(l) Stock-Based Compensation
The Company accounts for its stock-based compensation plan 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.
(m) Employee Benefit Plans
The Company accounts for qualified pension plans and other post-retirement healthcare plans in accordance with the
Compensation-Retirement Benefits Topic of the ASC. The Company recognizes the overfunded or underfunded status of its
qualified defined benefit plans and post-retirement healthcare plans as either an asset or liability, respectively, on the consolidated
balance sheets. Net periodic benefit cost is recognized during the year in the consolidated statements of operations. Actuarial
gains and losses that arise during the year are recognized as a component of comprehensive income (loss), net of applicable income
taxes, and included in accumulated other comprehensive loss. These gains and losses are amortized over future years as a component
of the net periodic benefit cost.
(n) Operating Segments
Management views its business of providing data, video and voice communication services to residential, wholesale and
business customers as one operating segment as defined in the Segment Reporting Topic of the ASC. The Company's services
consist of retail and wholesale telecommunications and data services, including voice and HSD in 17 states. The Company's chief
operating decision maker assesses operating performance and allocates resources based on the consolidated results.
(o) Other Liabilities
Accrued Bonuses. As of December 31, 2013 and 2012, accrued bonuses of $14.3 million and $13.2 million, respectively,
were included in other accrued liabilities on the consolidated balance sheets.
Unfavorable intangible assets. On the Effective Date (as defined hereinafter in note (4) "Reorganization Under Chapter
11"), the Company recorded $13.0 million in unfavorable union contracts and $0.7 million in unfavorable leasehold agreements,
each of which resulted from agreements with contract rates in excess of market value rates as of the Effective Date (as defined
hereinafter in note (4) "Reorganization Under Chapter 11"). Amortization is recognized on a straight-line basis over the remaining
term of the agreements, ranging from 1 to 7 years, as a reduction of employee expense and rent expense within operating expenses.
(p) Advertising Costs
Advertising costs are expensed as they are incurred.
(q) Interest Rate Swap Agreements
In the third quarter of 2013, the Company entered into interest rate swap agreements. For further information regarding
these interest rate swap agreements, see note (9) "Interest Rate Swap Agreements." The interest rate swap agreements, at their
inception, qualified for and were designated as cash flow hedging instruments. In accordance with the Derivatives and Hedging
Topic of the ASC, the Company records its interest rate swaps on the consolidated balance sheet at fair value. The effective portion
of changes in fair value are recorded in accumulated other comprehensive loss and are subsequently reclassified into earnings in
the period that the hedged forecasted transaction affects earnings. Any ineffective portion is recognized in earnings. Both at
inception and on a quarterly basis, the Company performs an effectiveness test.
(3) Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2013-02 related to disclosure of reclassifications out of accumulated other comprehensive income. This ASU requires companies