FairPoint Communications 2009 Annual Report Download - page 17

Table of Contents
prevent an ownership change that limits the Company's NOL carryforwards prior to the Effective Date, the Bankruptcy Court has put in place
notification procedures and potential restrictions on the trading of FairPoint Communications' common stock.
Any portion of the annual limitation that is not used in a particular year may be carried forward and used in subsequent years. The annual limitation
is increased by certain built-in gains recognized (or treated as recognized) during the five years following the ownership change (up to the total amount
of built-in gain that existed at the time of the ownership change). The Company expects any NOL limitation for the five years following an ownership
change will be increased by built-in gains. The Company also projects that all available NOL carryforwards after giving effect to the reduction for debt
discharged will be utilized to offset future income within the NOL carryforward periods. Therefore, the Company does not expect to have NOL
carryforwards after such time.
Financial Reporting in Reorganization
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and
contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's ability to continue as a going
concern is contingent upon its ability to comply with the financial and other covenants contained in the DIP Credit Agreement and, after the Effective
Date, the Exit Facility and the Bankruptcy Court's approval of the Plan, among other things. As a result of the Chapter 11 Cases, the realization of assets
and the satisfaction of liabilities are subject to uncertainty. While operating as debtor-in-possession under the Bankruptcy Code, the Company may sell
or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary
course of business (and subject to restrictions contained in the DIP Credit Agreement), in amounts other than those reflected in the accompanying
consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications in the historical consolidated
financial statements. The accompanying consolidated financial statements do not include any direct adjustments related to the recoverability and
classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to
continue as a going concern or as a consequence of the Chapter 11 Cases.
The Reorganizations Topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "ASC"), which is
applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that
the financial statements for periods subsequent to the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with
the reorganization from the ongoing operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the
business must be reported separately as reorganization items in the statements of operations beginning in the quarter ending December 31, 2009. The
balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise
and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed,
even if they may be settled for lesser amounts. In addition, cash provided by and used for reorganization items must be disclosed separately in the
statement of cash flows. The Company has applied the Reorganizations Topic of the ASC effective as of the Petition Date, and has segregated those
items as outlined above for all reporting periods subsequent to such date.
Defaults Under Outstanding Debt Instruments
The filing of the Chapter 11 Cases constituted an event of default under each of the following debt instruments:
•the indenture governing the New Notes (the "New Indenture");
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