FairPoint Communications 2011 Annual Report Download - page 92

Table of Contents
The majority of the Company’s miscellaneous revenue is provided from billing and collection, late payment charges to end users and interexchange
carriers, miscellaneous project revenues 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 minute billed by the Company. The Company recognizes revenue from billing and
collection services when the services are provided. In 2011, the Company began billing for late payment fees to customers who have not paid their bills in a
timely manner. Late fee revenue for residential and small business end user customers is recognized as it is billed while it is recognized for interexchange
carriers as it is collected. The Company requires customers to pay for miscellaneous projects in advance. As of December 31, 2011 and 2010, $9.8 million
and $4.6 million in customer deposits, respectively, were included in other accrued liabilities on the consolidated balance sheets. Once the miscellaneous
project is completed and all project costs have been accumulated for proper accounting recognition, the advance payment is recognized as revenue with any
overpayments refunded to the customer as appropriate.
Non-recurring customer activation fees, along with the related costs up to, but not exceeding, the activation fees, are deferred and amortized over the
customer relationship period.
Service quality index (“SQI”) penalties and certain performance assurance plan (“PAP”) penalties are recorded as a reduction to revenue. SQI penalties
for Maine, New Hampshire and Vermont are recorded to other accrued liabilities on the consolidated balance sheets. PAP penalties for Maine and New
Hampshire are recorded as a reduction to accounts receivable since these penalties are paid by the Company in the form of credits applied to the Competitive
Local Exchange Carrier (“CLEC”) bills. PAP penalties in Vermont are recorded to other accrued liabilities as a majority of these penalties are paid to the
Vermont Universal Service Fund, while the remaining credits assessed in Vermont are paid by the Company in the form of credits applied to CLEC bills.
Revenue is recognized net of tax collected from customers and remitted to governmental authorities.
Management makes estimated adjustments, as necessary, to revenue or accounts receivable for billing errors, including certain disputed amounts.
(c) Maintenance and Repairs
The cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments, is charged primarily to cost of
services and sales as these costs are incurred.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
(e) Restricted Cash
As of December 31, 2011, the Company had $22.9 million of restricted cash from which outstanding bankruptcy claims will be paid, $1.5 million of
restricted cash for removal of dual poles in Vermont and $0.7 million of cash restricted for other purposes.
In total, the Company had $25.1 million of restricted cash at December 31, 2011 of which $24.4 million is shown in current assets and $0.7 million is
shown as a non-current asset on the consolidated balance sheet.
(f) Accounts Receivable
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 written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
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