FairPoint Communications 2007 Annual Report Download - page 35

Table of Contents
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Section 404 of the Sarbanes-Oxley Act requires our management to make an assessment of the design and operating effectiveness of
our disclosure controls and procedures. Standards established by the Public Company Accounting Oversight Board define a material
weakness in these disclosure controls and procedures as a deficiency in internal control over financial reporting that results in a
reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected
on a timely basis. As discussed below in “Item 9A. Controls and Procedures,” we have concluded that the following material weakness in
our internal controls over financial reporting existed as of December 31, 2007:
• Our management oversight and review procedures designed to monitor the effectiveness of control activities in our northern New
England division, which was formed in 2007 to handle transactions relating to the merger, referred to as the northern New
England division, were ineffective. As a result, errors existed in capitalized software costs, operating expenses, accounts
receivable, prepaid expenses, accounts payable and accrued expenses in our preliminary 2007 consolidated financial statements.
If we fail to remedy this material weakness, that failure could result in material misstatements in our financial statements, cause
investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.
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 
The acquisition of the Spinco business is the largest and most significant acquisition we have undertaken. Our management will be
required to devote a significant amount of time and attention to the process of integrating the operations of our business and Spinco’s
business, which will decrease the time they will have to manage our business, service existing customers, attract new customers, develop
new services or strategies and respond to increasing forms of competition. Due to, among other things, the size and complexity of the
Northern New England business and the activities required to separate Spinco’s operations from Verizon’s, we may be unable to integrate
the Spinco business into our operations in an efficient, timely and effective manner. Our inability to complete this integration successfully
could have a material adverse effect on our business, financial condition and results of operations.
All of the risks associated with the integration process could be exacerbated by the fact that we may not have a sufficient number of
employees to integrate our and Spinco’s businesses or to operate our business. Furthermore, Spinco offers services that we have no
experience in providing, the most significant of which are competitive local exchange carrier wholesale services. Our failure or inability to
hire or retain employees with the requisite skills and knowledge to run our business following the merger, may have a material adverse
effect on our business. The inability of our management to manage the integration process effectively, or any significant interruption of
business activities as a result of the integration process, could have a material adverse effect on our business, financial condition and
results of operations.
In addition, if we continue to require services from Verizon under the TSA after the one-year anniversary of the closing of the
merger, the fees payable by us to Verizon pursuant to the TSA will increase significantly, which could have a material adverse effect on
our business, financial condition and results of operations. The aggregate fees expected to be payable by us under the TSA for the six-
month period following the merger will be approximately $132.9 million. However, if we require twelve months or eighteen months of
transition services following the merger, the aggregate fees expected to be payable will be approximately $226.9 million and
$336.2 million, respectively.
We have agreed to the appointment of an independent third-party monitor for the cutover process contemplated by the TSA. The
monitor will consult with representatives of the VDPS, the MPUC, and the NHPUC. The monitor will evalute and approve our testing
and cutover readiness process to evaluate our readiness to support operations after the cutover from the systems that will be provided by
the Verizon Group during the period of the TSA. Any delay caused by the evaluation and approval process would result in the
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