FairPoint Communications 2013 Annual Report Download - page 76

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by the Bankruptcy Court. Additionally, $15.2 million of these claims have been withdrawn by the respective creditors. The
disallowance of one claim in the amount of $0.2 million has been appealed by the claimant.
Fresh Start Accounting
Upon confirmation of the Plan by the Bankruptcy Court and satisfaction of the remaining material contingencies to complete
the implementation of the Plan, under the Reorganizations Topic of the ASC, the Company was required to apply the provisions
of fresh start accounting to its financial statements on the Effective Date because (i) the reorganization value of the assets of the
emerging entity immediately before the date of confirmation was less than the total of all post-petition liabilities and allowed
claims and (ii) the holders of the existing voting shares of the Predecessor Company's common stock immediately before
confirmation received less than 50 percent of the voting shares of the emerging entity.
The adoption of fresh start accounting resulted in a new reporting entity. The financial statements as of January 24, 2011
and for subsequent periods report the results of a new entity with no beginning retained earnings. With the exception of deferred
taxes and assets and liabilities associated with pension and post-retirement healthcare plans, which were recorded in accordance
with the Income Taxes Topic of the ASC and the Compensation Topic of the ASC, respectively, all of the new entity's assets and
liabilities were recorded at their estimated fair values upon the Effective Date and the Predecessor Company's retained deficit and
accumulated other comprehensive loss were eliminated. Any presentation of the new entity's financial position and results of
operations is not comparable to prior periods.
In accordance with fresh start accounting, the Company also recorded the debt and equity at fair value utilizing the total
enterprise value of approximately $1.5 billion. The enterprise value was determined in conjunction with the confirmation of the
Plan. To facilitate the calculation of the enterprise value, the Company developed financial projections for the five years ending
December 31, 2015 for the post-emergence company using a number of estimates and assumptions and prepared a calculation of
the present value of the future cash flows. The projections were based on information available to the Company at the time of
preparation of such projections in connection with the Plan and its confirmation and also in connection with negotiations regarding
the Plan with certain of its lenders. The projections and calculation of the present value of the future cash flows included key
assumptions, such as: (i) revenue growth beginning in 2013 through the terminal year based on the Company achieving specified
business objectives, (ii) improving earnings before interest and taxes margins, (iii) reductions in capital expenditures and (iv) a
risk adjusted discount rate of 7.2%. Projections are inherently subject to uncertainties and risks and the Company's actual results
and financial condition have varied from those contemplated by the projections and other financial information provided to the
Bankruptcy Court. The Company believes that because such projections and other financial information are now out of date and
because of developments with respect to the Company's business since such projections were prepared, these projections should
not be relied upon.
(5) Dividends
The Company currently does not pay a dividend on its common stock and does not expect to pay dividends in the foreseeable
future.
(6) Goodwill and Other Intangible Assets
Goodwill
At September 30, 2011, as a result of the significant sustained decline in the Company's stock price since the Effective Date,
which caused the Company's market capitalization to be below its book value, the Company determined that a possible impairment
of goodwill was indicated and concluded that an interim two-step goodwill impairment test was necessary. In step one, the Company
calculated the discounted cash flows to arrive at a fair value, which was then compared to the carrying value, including goodwill.
A combination of expected cash flows and higher discount rates resulted in the fair value, using the discounted cash flow method,
being less than the carrying value, at which point the Company proceeded to step two, which compared the implied fair value of
the Company's goodwill to the carrying amount. Results of the impairment test required the Company to record a non-cash
impairment charge of $243.2 million, reducing the carrying value of the goodwill to zero at September 30, 2011.
Indefinite-lived Intangible Asset
At September 30, 2011, as a result of the significant sustained decline in the Company's stock price since the Effective Date
which 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 a non-cash impairment charge totaling $18.8 million at September 30, 2011. At December 31,
2013 and 2012, the Company's trade name is recorded at $39.2 million.