FairPoint Communications 2003 Annual Report Download - page 34

(STE); MJD Ventures, Inc. (Ventures); MJD Services Corp. (Services); FairPoint Carrier Services, Inc. (Carrier Services) (formerly known as
FairPoint Communications Solutions Corp.); FairPoint Broadband, Inc. (Broadband); and MJD Capital Corp. STE, Ventures, and Services
also provide management services to their wholly owned subsidiaries.
Collectively, the wholly owned subsidiaries of STE, Ventures, and Services primarily provide telephone local exchange services in
various states. Operations also include resale of long distance services, internet services, cable services, equipment sales, and installation
and repair services. MJD Capital Corp. leases equipment to other subsidiaries of FairPoint. Carrier Services provides wholesale long
distance services. Broadband provides wireless broadband services and wholesale data products.
STE's wholly owned subsidiaries include Sunflower Telephone Company, Inc. (Sunflower); Northland Telephone Company of
Maine, Inc. and Northland Telephone Company of Vermont (Collectively, the Northland Companies); and ST Long Distance, Inc. (ST Long
Distance). Ventures' wholly owned subsidiaries include Sidney Telephone Company (Sidney); C-R Communications, Inc. (C-R); Taconic
Telephone Corp. (Taconic); Ellensburg Telephone Company (Ellensburg); Chouteau Telephone Company (Chouteau); Utilities, Inc.
(Utilities); Chautauqua and Erie Telephone Corporation (C&E); The Columbus Grove Telephone Company (Columbus Grove); The Orwell
Telephone Company (Orwell); GTC Communications, Inc. (GT Com); Peoples Mutual Telephone Company (Peoples); Fremont Telcom Co.
(Fremont); Fretel Communications, LLC (Fretel); Comerco, Inc. (Comerco); Marianna and Scenery Hill Telephone Company (Marianna);
Community Service Telephone Co. (CST); and Commtel Communications Inc. (Commtel). Services' wholly owned subsidiaries include
Bluestem Telephone Company (Bluestem); Big Sandy Telecom, Inc. (Big Sandy); Columbine Telecom Company (Columbine); Odin
Telephone Exchange, Inc. (Odin); Ravenswood Communications, Inc. (Ravenswood); and Yates City Telephone Company (Yates).
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The consolidated financial statements include the accounts of FairPoint and its subsidiaries (the Company). All intercompany
transactions and accounts have been eliminated in consolidation.
On November 7, 2001, the Company announced Carrier Services' plan to sell certain of its assets and to discontinue competitive
communications operations. As a result of the adoption of this plan, the financial results have been reclassified in the accompanying
consolidated financial statements to present these operations as discontinued (see note 12).
On September 30, 2003, the Company completed the sale of all of the capital stock owned by Services of Kadoka Telephone Co., Union
Telephone Company of Hartford, Armour Independent Telephone Co. and WMW Cable TV Co. As a result of this sale, the financial results
have been reclassified in the accompanying consolidated financial statements to present these operations as discontinued and the assets and
liabilities of these operations were reclassified as held for sale at December 31, 2002 (see note 2). This divestiture is referred to herein as the
South Dakota Divestiture.
The Company's telephone subsidiaries follow the accounting for regulated enterprises prescribed by Statement of Financial Accounting
Standards (SFAS) No. 71, 
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 (SFAS No. 71). This accounting recognizes the economic effects of rate regulation by recording costs and a return on
investment; as such amounts are recovered through rates authorized by regulatory authorities. Accordingly, SFAS No. 71 requires the
Company's telephone subsidiaries to depreciate telephone plant over useful lives that would otherwise be determined by management.
SFAS No. 71 also requires deferral of certain costs and obligations based upon approvals received from regulators to permit recovery of such
amounts in future years. The Company's telephone subsidiaries periodically review the applicability of SFAS No. 71 based on the
developments in their current regulatory and competitive environments.
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The Company's management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the
reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those
estimates.
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Revenues are recognized as services are rendered and are primarily derived from the usage of the Company's networks and facilities or
under revenue sharing arrangements with other communications carriers. Revenues are primarily derived from: access, pooling, long
distance services, internet and data services, and other miscellaneous services. Local access charges are billed to local end users under
tariffs approved by each state's Public Utilities Commission. Access revenues are derived for the intrastate jurisdiction by billing access
charges to interexchange carriers and to regional Bell operating companies. These charges are billed based on toll or access tariffs approved
by the local state's Public Utilities Commission. Access charges for the interstate jurisdiction are billed in accordance with tariffs filed by the
National Exchange Carrier Association (NECA) or by the individual company and approved by the Federal Communications Commission.
Revenues are determined on a bill and keep basis or a pooling basis. If on a bill and keep basis, the Company bills the charges to either
the access provider or the end user and keeps the revenue. If the Company participates in a pooling environment (interstate or intrastate), the
toll or access billed are contributed to a revenue pool. The revenue is then distributed to individual companies based on their company-specific
revenue requirement. This distribution is based on individual state Public Utilities Commission (intrastate) or Federal Communications