FairPoint Communications 2010 Annual Report Download - page 6

Table of Contents
Each of the errors noted above resulted in an understatement of operating expenses and an overstatement of property, plant and equipment.
Other Adjustments
In addition, as part of this restatement, the Company also adjusted other items, including certain adjustments to revenue that were identified in connection
with the preparation of the consolidated financial statements for the year ended December 31, 2010, which individually were not considered to be material, but
are material when aggregated with the three adjustments noted above. These adjustments are primarily related to (a) errors in the calculation of certain
regulatory penalties, and (b) errors in revenue associated with certain customer billing, special project billings and intercompany/official lines. The restatement
only affects the first three quarterly periods of 2010.
The Company is currently reviewing the design of its controls and procedures in order to remediate the material weakness that prevented these accounting
errors from being detected in a timely manner. While the Company implements a system solution, the Company has increased the resources devoted to manual
processes to compensate for the material weakness. The material weakness has been identified and is further described in Part II — Item 9A — Controls and
Procedures.
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.
Cash, as previously reported, for the nine months ended September 30, 2010 was not impacted by these adjustments. In addition, the Company expects
that these adjustments will not have a material impact on the Company’s overall liquidity in the future.
Except as required to reflect the effects of the restatement for the items set forth above, no additional modifications or updates have been made to the 2010
Interim Consolidated Financial Statements or the 2010 Quarterly Reports. For example, this Annual Report does not give effect to any subsequent events that
may impact the 2010 Interim Consolidated Financial Statements or the 2010 Quarterly Reports. Other information not affected by the restatement remains
unchanged and continues to reflect the disclosures made at the time of the original filing of the 2010 Quarterly Reports.
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Except as otherwise required by the context, references in this Annual Report to:
 “FairPoint Communications” refers to FairPoint Communications, Inc., excluding its subsidiaries;
 “FairPoint,” the “Company,” “we,” “us” or “our” refer to the combined business of FairPoint Communications, Inc. and all of its
subsidiaries after giving effect to the merger on March 31, 2008, with Northern New England Spinco Inc. (“Spinco”), a subsidiary of Verizon
Communications Inc. (“Verizon”), which transaction is referred to herein as the “Merger”;
 “Northern New England operations” refers to the local exchange business acquired from Verizon and certain of its subsidiaries after giving
effect to the Merger;
 “Legacy FairPoint” or “Telecom Group” refers to FairPoint, exclusive of our acquired Northern New England operations; and
 “Verizon Northern New England business” refers to the local exchange business of Verizon New England Inc. (“Verizon New England”) in
Maine, New Hampshire and Vermont and the customers of Verizon and its subsidiaries’ (other than Cellco Partnership) (collectively, the
“Verizon Group”) related long distance and Internet service provider business in those states prior to the Merger.
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