FairPoint Communications 2004 Annual Report Download - page 518

Cellular service revenues resulting from a cellsite agreement with Cellco are recognized based upon an allocation of airtime minutes (See Note 4).
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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: allocations, allowance for uncollectible accounts receivable,
unbilled revenue, fair value of financial instruments, depreciation and amortization, useful lives 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 financial statements in
the period that they are determined to be necessary.
Operating Expenses - Operating expenses include expenses incurred directly by the Partnership, as well as an allocation of certain 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, principally based
on the Partnership’s percentage of total customers, customer gross additions, or minutes-of-use, are reasonable.
Property, Plant and Equipment - Property, plant and equipment primarily represents costs incurred to construct and expand capacity and network
coverage on Mobile Telephone Switching Offices and cell sites within the Partnership’s network. The cost of property, plant and equipment is
depreciated over its estimated useful life using the straight-line method of accounting. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the related lease. 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.
Upon the sale or retirement of property, plant and equipment, the cost and related accumulated depreciation or amortization is eliminated from the
accounts and any related gain or loss is reflected in the Statements of Operations.
Network engineering costs incurred during the construction phase of the Partnership’s network and real estate properties under development are
capitalized as part of property, plant and equipment and recorded as construction in progress until the projects are completed and placed into service.
FCC Licenses - The Federal Communications Commission (“FCC”) issues licenses that authorize cellular carriers to provide service in specific cellular
geographic service areas. The FCC grants licenses for terms of up to ten years. In 1993 the FCC adopted specific standards to apply to cellular
renewals, concluding it will reward a license renewal to a cellular licensee that meets certain standards of past performance. Historically, the FCC has
granted license renewals routinely. The current term of both of the Partnership’s FCC licenses expire in January 2008. Both of the Partnership’s licenses
are recorded on the books of Cellco. Cellco believes it will be able to meet all requirements necessary to secure renewal of the Partnership’s cellular
licenses.
Valuation of Assets - Long-lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.
7