FairPoint Communications 2009 Annual Report Download - page 167

Table of Contents
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bills. Based on the Company's current estimate of its service quality penalties in these states, a $26.0 million increase in the estimated liability was
recorded as a reduction to revenue for the year ended December 31, 2009. The Company has recorded a total liability of $27.5 million on the
consolidated balance sheet at December 31, 2009. Additional penalties may be assessed as a result of service quality issues related to the Cutover, which
could have a material adverse effect on the Company's financial position, results of operations and liquidity.
During February 2010, the Company reached agreements with the state regulatory authorities in each of Maine, New Hampshire and Vermont.
Term sheets executed with the state regulatory authorities of New Hampshire and Vermont defer fiscal 2008 and 2009 penalties until December 31,
2010 and include a clause whereby such penalties may be forgiven in part or in whole if the Company meets certain metrics for the twelve-month period
ending December 31, 2010. As this clause represents a contingent gain, the Company has not recognized such gain as of December 31, 2009. As of
December 31, 2009 the Company has accrued fiscal 2008 and 2009 liabilities of $6.0 million for New Hampshire and approximately $11.4 million for
Vermont.
At this time, it is unclear what effect the filing of the Chapter 11 Cases will have on the requirements, including service quality penalties, imposed
by the PUCs in Maine, New Hampshire and Vermont as a condition to the approval of the Merger and whether such requirements will be enforceable
against the Company in the future.
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Impact of Healthcare Reform on Deferred Tax Assets
President Obama signed into law on March 23, 2010 the Patient Protection and Affordable Care Act and on March 30, 2010 the Health Care and
Education Reconciliation Act of 2010 (collectively "PPACA") which reforms the healthcare system in the United States. One of the provisions of
PPACA is the elimination of the tax deductibility for retiree health care costs after December 31, 2012 to the extent of federal subsidies received by plan
sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D coverage. Employers who include the present value of future
Medicare Part D retiree drug subsidy ("RDS") in their post-retirement liabilities will be required to adjust the balance of any deferred tax assets on their
balance sheets accordingly in the period the PPACA was signed into law. The present value as of December 31, 2009 of the RDS payments affected by
PPACA in the FairPoint retiree medical plans is $16.9 million. The reduction in deferred tax asset to be booked in 1Q2010 is this amount multiplied by
our assumed effective tax rate.
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