FairPoint Communications 2011 Annual Report Download - page 91

Table of Contents
(l) In conjunction with fresh start accounting, management of the Successor Company changed its accounting policy to classify certain items relating to
future use in capital projects with property, plant and equipment. As a result of this change in policy, management reclassified $24.1 million from
materials and supplies and $3.3 million from other long-term assets to property, plant and equipment.
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(a) Presentation and Use of Estimates
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”),
which require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates.
The consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the
periods shown, including normal recurring accruals and other items.
Examples of significant estimates include fresh start accounting, the allowance for doubtful accounts, revenue reserves, the recoverability of plant,
property and equipment, valuation of intangible assets, pension and post-retirement healthcare plan assumptions and income taxes. In addition, estimates have
been made in determining the amounts and classification of certain liabilities within liabilities subject to compromise and the Claims Reserve.
(b) 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, voice services, Universal Service Fund
receipts, Internet and broadband services and other miscellaneous services. Local access charges are billed to local end users under tariffs approved by each
state’s Public Utilities Commission (“PUC”). Access revenues are derived for the intrastate jurisdiction by billing access charges to interexchange carriers and
to other local exchange carriers (“LECs”). These charges are billed based on toll or access tariffs filed with the local state’s PUC. Access charges for the
interstate jurisdiction are billed in accordance with tariffs filed by the National Exchange Carrier Association or by the individual company and approved by
the Federal Communications Commission (the “FCC”).
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 PUCs’ (intrastate) or the FCC’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. Revenues earned through the various pooling
arrangements are initially recorded based on the Company’s estimates.
Long-distance retail and wholesale services can be recurring due to coverage under an unlimited calling plan or usage sensitive. In either case, they are
billed in arrears and recognized when earned. Internet and broadband services revenues are substantially all recurring revenues and are billed one month in
advance and deferred until earned.
As of December 31, 2011 and 2010, unearned revenue of $17.0 million and $15.3 million, respectively, were included in other accrued liabilities on the
consolidated balance sheets.
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