FairPoint Communications 2010 Annual Report Download - page 13

Table of Contents
Following the Cutover, many of these new systems functioned without significant problems, but a number of the key back-office systems, such as order
entry, order management and billing, experienced certain functionality issues as well as issues with communication between the systems. As a result of these
systems functionality issues, as well as work force inexperience on the new systems, we experienced increased handle time by customer service representatives
for new orders, reduced levels of order flow-through across the systems, which caused delays in provisioning and installation, and delays in the processing of
bill cycles and collection treatment efforts. These issues impacted customer satisfaction and resulted in large increases in customer call volumes into our
customer service centers. While many of these issues were anticipated, the magnitude of difficulties experienced was beyond our expectations. Because of these
Cutover issues, we have incurred incremental costs in order to operate our business, including third-party contractor costs and internal labor costs in the form
of overtime pay.
By the end of 2010, we have substantially stabilized the back-office systems. We continue to work on improving our processes and systems to support
revenue growth, enhance customer service and increase operational efficiency.
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On April 30, 2010, we filed amendments to our Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2009, June 30, 2009 and
September 30, 2009 (collectively, the “Amendments”) to reflect the effect of an accounting error, a one-time non-operating loss related to a disputed claim and
certain billing and other adjustments. For the nine months ended September 30, 2009, the accounting error and the billing and other adjustments resulted in a
$25.0 million overstatement of revenues, a $0.2 million understatement of operating expenses and a $9.6 million overstatement of other income in the
financial data originally reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, which was originally filed with the SEC on
November 20, 2009. The restatement of the interim condensed consolidated financial statements contained in the Amendments (the “2009 Restatement”),
which Restatement accounted for the foregoing overstatements and understatement, resulted in a reduction in net income of $21.8 million, net of income taxes,
for the nine months ended September 30, 2009. For more information, see the Amendments as filed with the SEC.
In this Annual Report, the Company is restating its unaudited quarterly financial statements for the quarters ended March 31, 2010, June 30, 2010 and
September 30, 2010 (the “2010 Restatement”). The aggregate impact of these adjustments will result in an increase to the Company’s previously reported pre-
tax loss for the nine month period ended September 30, 2010 of approximately $28.4 million, which is mainly attributable to a reduction to reported revenues
of approximately $3.9 million, an increase to the Company’s previously reported expenses of approximately $26.8 million, a decrease in other expense of
approximately $3.2 million and a $0.9 million increase of expense to reorganization items. The aggregate impact of the adjustments for the nine months ended
September 30, 2010 will result in a reduction in net income of $28.4 million, net of taxes, and a decrease in the Company’s reported capital expenditures of
approximately $15.4 million. See note 17 to the consolidated financial statements for further detail.
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We are a leading provider of communications services in rural and small urban communities, offering an array of services, including high speed data
(“HSD”), Internet access, voice, television and broadband product offerings. We operate in 18 states with approximately 1.4 million access line equivalents
(including voice access lines and HSD lines, which include digital subscriber lines (“DSL”), wireless broadband, cable modem and fiber-to-the-premises) in
service as of December 31, 2010.
We were incorporated in Delaware in February 1991 for the purpose of acquiring and operating incumbent telephone companies in rural and small urban
markets. Many of our telephone companies have served their respective communities for over 75 years.
Voice access lines are an important element of our business. Over the past several years, communications companies, including FairPoint, have experienced
a decline in voice access lines due to increased competition, including competition from wireless carriers and cable television operators, increased availability
of broadband services and challenging economic conditions. While voice access lines are expected to continue to decline, we expect to offset a portion of this
lost revenue with growth in HSD revenue as we continue to build-out our network to provide HSD products to customers who did not previously have access
to such products and to offer more competitive services to existing customers. In addition, due to the Cutover issues and the Chapter 11 Cases, we have lost
significant market share in recent years. Our strategy will be to focus on leveraging our ubiquitous network in our Northern New England operations to regain
market share, particularly in the business and wholesale markets and for data services.
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