FairPoint Communications 2006 Annual Report Download - page 64

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(a) Organization
FairPoint Communications, Inc. (FairPoint) provides management services to its wholly owned subsidiaries: ST Enterprises, Ltd. (STE); MJD
Ventures, Inc. (Ventures); MJD Services Corp. (Services); FairPoint Carrier Services, Inc. (Carrier Services); FairPoint Broadband, Inc. (Broadband); and
MJD Capital Corp. STE, Ventures, and Services also provide management services to their wholly owned subsidiaries.
Collectively, the wholly owned subsidiaries of STE, Ventures, and Services primarily provide telephone local exchange services in various states.
Operations also include resale of long distance services, internet services, cable services, equipment sales, and installation and repair services. MJD Capital
Corp. leases equipment to other subsidiaries of FairPoint. Carrier Services provides wholesale long distance services. Broadband provides wireless broadband
services and wholesale data products.
STE’s wholly owned subsidiaries include Sunflower Telephone Company, Inc. (Sunflower); Northland Telephone Company of Maine, Inc.; FairPoint
Vermont, Inc.; ST Computer Resources, Inc.; and ST Long Distance, Inc. (ST Long Distance). Ventures’ wholly owned subsidiaries include Bentleyville
Communications Corporation (Bentleyville), Berkshire Telephone Corporation (Berkshire), Sidney Telephone Company (Sidney); C-R Communications, Inc.
(C-R); Taconic Telephone Corp. (Taconic); Ellensburg Telephone Company (Ellensburg); Chouteau Telephone Company (Chouteau); Utilities, Inc.
(Utilities); Chautauqua and Erie Telephone Corporation (C&E); The Columbus Grove Telephone Company (Columbus Grove); The Orwell Telephone
Company (Orwell); GTC Communications, Inc. (GT Com); Peoples Mutual Telephone Company (Peoples); Fremont Telcom Co. (Fremont); Fretel
Communications, LLC (Fretel); Comerco, Inc. (Comerco); Marianna and Scenery Hill Telephone Company (Marianna); Community Service Telephone Co.
(CST); Commtel Communications Inc. (Commtel); Telephone Service Company; and The Germantown Independent Telephone Company (GITC). Services’
wholly owned subsidiaries include Bluestem Telephone Company (Bluestem); Big Sandy Telecom, Inc. (Big Sandy); FairPoint Communications
Missouri, Inc.; Columbine Telecom Company (Columbine); Odin Telephone Exchange, Inc. (Odin); Ravenswood Communications, Inc. (Ravenswood);
Unite Communications Systems, Inc.; and Yates City Telephone Company (Yates).
(b) Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of FairPoint and its subsidiaries (the Company). All intercompany transactions and accounts
have been eliminated in consolidation.
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
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