FairPoint Communications 2010 Annual Report Download - page 130

Table of Contents
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On June 1, 2010, the Bankruptcy Court approved the Company’s motion to assume an amended volume product purchase and sale agreement with Occam
Networks, Inc (“Occam”). This motion includes a commitment by the Company to purchase at least $12.0 million worth of products from Occam during the
initial five-year term of the amended agreement, which term ends on April 1, 2013. As of December 31, 2010, the Company has met this purchase
commitment.
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Upon confirmation of the Plan by the Bankruptcy Court and satisfaction of the remaining material contingencies to complete the implementation of the
Plan, fresh start accounting principles are to be applied pursuant to the provisions of the Reorganizations Topic of the ASC. The Company will apply fresh
start accounting on the Emergence Date. The financial statements as of January 24, 2011 and for subsequent periods will report the results of a new entity with
no beginning retained earnings. Any presentation of the new reporting entity represents the financial position and results of operations of a new reporting entity
and is not comparable to prior periods.
The Reorganizations Topic of the ASC provides, among other things, for a determination of the value to be assigned to the assets of the reorganized
FairPoint as of a date selected for financial reporting purposes. In accordance with the Reorganizations Topic of the ASC, the results of operations of FairPoint
prior to January 24, 2011 (the predecessor) will include (i) a pre-emergence gain of approximately $1,341.0 million resulting from the discharge of liabilities
under the Plan; (ii) pre-emergence charges to earnings to be recorded as reorganization items resulting from certain costs and expenses relating to the Plan
becoming effective; and (iii) a pre-emergence decrease in earnings of approximately $387.3 million resulting from the aggregate changes to the net carrying value
of our pre-emergence assets and liabilities to reflect their fair values under fresh start accounting.
The Company’s reorganization value is estimated to be approximately $2.5 billion. In accordance with fresh start accounting, the reorganization value was
allocated to the Company’s assets based on their respective fair values in conformity with the acquisition method of accounting for business combinations in
the Business Combinations Topic of the ASC. The reorganization value represents the amount which approximates the fair value of the Company’s assets.
The valuations required to determine the fair value of certain of the Company’s assets as presented below represent the Company’s preliminary estimates.
The adjustments presented below are presented on an unaudited pro-forma basis as of December 31, 2010 even though the actual date of emergence is
January 24, 2011. Accordingly, these estimates are preliminary and subject to further revisions and adjustments, based on any updated valuations, actual
amounts and applicable economic conditions as of January 24, 2011. The Company’s actual fresh start accounting adjustments may vary significantly from
those presented below.
The unaudited pro forma adjustments presented below summarize the impact of the Plan and the adoption of fresh start accounting as if the Effective Date
had occurred on December 31, 2010.
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