FairPoint Communications 2004 Annual Report Download - page 84

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. 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, . 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. Criteria that would give rise to the discontinuance of SFAS No. 71 include (1) increasing competition
restricting the wireline subsidiaries' ability to establish prices to recover specific costs and (2) significant changes in the manner
in which rates are set by regulators from cost-based regulation to another form of regulation. The Company's telephone
subsidiaries periodically review the applicability of SFAS No. 71 based on the developments in their current regulatory and
competitive environments.
(c) Use of Estimates
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.
(d) Revenue Recognition
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
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