FairPoint Communications 2007 Annual Report Download - page 81

Table of Contents
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2008, $10.2 million due in May 2008, and the remaining $17.0 million due in the first quarter of 2009. These amounts are only payable
on the specified dates if the debt is outstanding when the payments are due.
Under the terms of the Capgemini Second Amendment, dated February 25, 2008, the Company agreed that if the Merger is not
consummated or is delayed beyond March 31, 2008, the total amount due to Capgemini would be approximately $36 million. In these
circumstances, this amount will be repaid as follows: $6 million will be payable in 2008 and $30 million will be payable in 2009
through 2011 in quarterly installments. Unpaid balances will be payable with interest at an annual rate of 6.25%.
After considering the modified debt covenants effected by the Fifth Amendment, the deferral of amounts due to Capgemini under the
Capgemini Second Amendment, the Company’s projected cash flows, cash available and borrowings available under the existing credit
facility at December 31, 2007, management believes that the Company has sufficient liquidity to cover the Company’s working capital
needs, capital expenditures and debt service requirements through at least December 31, 2008.
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The Company’s management has made a number of estimates and assumptions relating to the reported amounts 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 U.S. generally accepted accounting principles, or GAAP. 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, local
calling services, Universal Service Fund receipts, 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 is 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 commissions (intrastate) or the
Federal Communication Commission’s (interstate) approved separation rules and rates of return. Distribution from these pools can change
relative to changes made to expenses, plant investment, or rate of return. Some companies participate in federal and certain state universal
service programs that are pooling in nature but are regulated by rules separate from those described above. These rules vary by state.
Revenues earned through the various pooling arrangements are initially recorded based on the Company’s estimates.
Long distance retail and wholesale services are usage sensitive and are billed in arrears and recognized when earned. Internet and data
services revenues are substantially all recurring revenues and are billed one month in advance and deferred until earned. The majority of
the Company’s miscellaneous revenue is provided from billing and collection and directory services. The Company earns revenue from
billing and collecting charges for toll calls on behalf of interexchange carriers. The interexchange carrier pays a certain rate per
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