FairPoint Communications 2010 Annual Report Download - page 80

Table of Contents
statements of operations, operating revenues were determined using applicable billing system data and average access lines in service; cost of services and
sales, selling, general and administrative expenses and interest expense were allocated based on the percentage of the Verizon Northern New England business
revenues related to the VOL component to the total VOL revenues applied to operating expenses and interest expense for total VOL.
VSSI: For the balance sheet, receivables were allocated based on the applicable operating revenues and accounts payable were allocated based on applicable
operating expenses. For the statements of operations, operating revenues were identified using applicable system data; cost of services and sales and selling,
general and administrative expenses were allocated based on the percentage of the Verizon Northern New England business revenues related to the VSSI
component to the total VSSI revenues applied to operating expenses for total VSSI.
Management believes the allocations used to determine selected amounts in the financial statements are appropriate methods to reasonably reflect the related
assets, liabilities, revenues and expenses of the Verizon Northern New England business for periods prior to the Merger.
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On October 26, 2009, the Company and substantially all of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for
relief under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court for the
Southern District of New York (the “Bankruptcy Court”). The cases are being jointly administered under the caption In re FairPoint Communications, Inc.,
Case No. 09-16335 (the “Chapter 11 Cases”). On January 13, 2011, the bankruptcy judge confirmed the Plan and on January 24, 2011 (the “Effective
Date”) the Company emerged from Chapter 11 protection.
The Company has applied the Reorganizations Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
effective as of the Petition Date. See note 2.
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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.
The accompanying consolidated financial statements have been prepared in accordance with the Reorganizations Topic of the ASC. All pre-petition
liabilities subject to compromise have been segregated in the consolidated balance sheets and classified as liabilities subject to compromise at the estimated
amount of the allowable claims. Liabilities not subject to compromise are separately classified as current or noncurrent. The Company’s consolidated
statements of operations for the years ended December 31, 2010 and 2009 include the results of operations during the Chapter 11 Cases. As such, any
revenues, expenses, and gains and losses realized or incurred that are directly related to the bankruptcy case are reported separately as reorganization items due
to the bankruptcy.
The Company received approval from the Bankruptcy Court to pay or otherwise honor certain of its pre-petition obligations, including employee related
obligations such as accrued vacation and pension related benefits. As such, these obligations have been excluded from liabilities subject to compromise as of
December 31, 2010 and 2009.
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