FairPoint Communications 2003 Annual Report Download - page 35

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.
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 billed are 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 each message billed
by the Company. The Company recognizes revenue from billing and collection services when the services are provided. The Company
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recognizes directory services revenue over the subscription period of the corresponding directory. Billing and collection is normally billed
under contract or tariff supervision. Directory services are normally billed under contract.
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Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's
best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Receivable
balances are reviewed on an aged basis and account balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
The following is activity in the Company's allowance for doubtful accounts receivable for the years ended December 31 (dollars in
thousands):
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Balance, beginning of period $1,434 1,355 1,235
Additions due to acquisitions 4 — 202
Provision charged to expense 1,035 2,997 292
Amounts written off, net of recoveries (1,118)(3,117)(701)
Balance, end of period $1,355 1,235 1,028
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Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade
receivables. The Company places its cash with high-quality financial institutions. Concentrations of credit risk with respect to trade
receivables are principally related to receivables from other interexchange carriers and are otherwise limited to the Company's large number
of customers in several states.
The Company is also exposed to credit losses in the event of nonperformance by the counterparties to its interest rate swap agreements.
The Company anticipates, however, that the counter parties will be able to fully satisfy their obligations under the contracts.
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Investments consist of stock in CoBank, ACB (CoBank), Rural Telephone Bank (RTB), the Rural Telephone Finance Cooperative
(RTFC), Choice One Communications Inc. (Choice One), various cellular companies and partnerships and other minority equity
investments, and Non-Qualified Deferred Compensation Plan assets. The stock in CoBank, RTB, and the RTFC is nonmarketable and
stated at cost. For investments in partnerships, the equity method of accounting is used.
The investment in Choice One stock is a marketable security classified as available for sale. Non-Qualified Deferred Compensation
Plan assets are classified as trading. The Company uses fair value reporting for marketable investments in debt and equity securities
classified as either available-for-sale or trading. For available-for-sale securities, the unrealized holding gains and losses,
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net of the related tax effect, are excluded from earnings and are reported as a separate component of comprehensive income until realized.
Unrealized holding gains and losses on trading securities are included in other income.
To determine if an impairment of an investment exists, the Company monitors and evaluates the financial performance of the business
in which it invests and compares the carrying value of the investee to quoted market prices (if available), or the fair values of similar
investments, which in certain instances, is based on traditional valuation models utilizing multiples of cash flows. When circumstances