FairPoint Communications 2002 Annual Report Download - page 453

2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Estimates are used for, but not limited to, the
accounting for: allowance for uncollectible accounts receivable, unbilled
revenue, depreciation and amortization, useful life and impairment of
assets, accrued expenses, taxes, and contingencies. Estimates and
assumptions are periodically reviewed and the effects of any material
revisions are reflected in the consolidated financial statements in the
period that they are determined to be necessary.
REVENUE RECOGNITION - The Partnership earns revenue by providing access to
the network (access revenue) and for usage of the network (airtime/usage
revenue), which includes roaming and long distance revenue. In general,
access revenue is billed one month in advance and is recognized when
earned; the unearned portion is classified in advance billings.
Airtime/usage revenue, roaming revenue and long distance revenue are
recognized when service is rendered and included in unbilled revenue until
billed. The Partnership's revenue recognition policies are in accordance
with the Securities and Exchange Commission's Staff Accounting Bulletin
("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS.
Approximately 95% of the Partnership's revenue is affiliate revenue due to
the fact that Cellco is the Partnership's primary reseller. The wholesale
rates charged to Cellco do not necessarily reflect current market rates.
The Partnership is re-evaluating the rates and expects these rates to be
reduced in the future consistent with market trends and the terms of the
limited partnership agreement (See Note 4).
Cellular service revenues resulting from a cellsite agreement with Cellco
are recognized based upon an allocation of airtime minutes (See Note 4).
OPERATING EXPENSES - Operating expenses include expenses incurred directly
by the Partnership, as well as an allocation of administrative and
operating costs incurred by the general partner or its affiliates on
behalf of the Partnership. Services performed on behalf of the Partnership
are provided by employees of Cellco. These employees are not employees of
the Partnership and therefore, operating expenses include direct and
allocated charges of salary and employee benefit costs for the services
provided to the Partnership. The Partnership believes such allocations are
reasonable.
In 2002 the Partnership has classified all site rentals and network
related salaries as cost of service. The Partnership has reclassified
approximately $2,812 from selling, general and administrative expense to
cost of service for the year ended December 31, 2001.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment primarily
represents costs incurred to construct and enhance Mobile Telephone
Switching Offices and cell sites. The cost of property, plant and
equipment is depreciated over its estimated useful life using the
straight-line method of accounting. Major improvements to existing plant
and equipment are capitalized. Routine maintenance and repairs that do not
extend the life of the plant and equipment are charged to expense as
incurred.
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Upon the sale or retirement of property, plant and equipment, the cost and
related accumulated depreciation or amortization is eliminated from the