FairPoint Communications 2010 Annual Report Download - page 82

Table of Contents
Liabilities not subject to compromise include: (1) liabilities incurred after the Petition Date; (2) pre-Petition Date liabilities that the Company expects to pay
in full such as medical or retirement benefits; and (3) pre-Petition Date liabilities that have been approved for payment by the Bankruptcy Court and that the
Company expects to pay (in advance of a plan of reorganization) in the ordinary course of business, including certain employee-related items such as salaries
and vacation pay.
The classification of liabilities not subject to compromise versus liabilities subject to compromise is based on currently available information and analysis.
As the Chapter 11 Cases proceed and additional information and analysis is completed, or as the Bankruptcy Court rules on relevant matters, the
classification of amounts between these two categories may change. The amount of any such change could be significant.

The Company has filed with the Bankruptcy Court schedules and statements of financial affairs setting forth, among other things, the Company’s assets
and liabilities, subject to the assumptions filed in connection therewith. All of the schedules are subject to amendment or modification.
Bankruptcy Rule 3003(c)(3) requires the Bankruptcy Court to set the time within which proofs of claim must be filed in a Chapter 11 case. The
Bankruptcy Court established March 18, 2010 at 5:00 p.m. Eastern Time (the “General Bar Date”) as the last date and time for all non-governmental entities
to file a proof of claim against the Debtors and April 26, 2010 at 5:00 p.m. Eastern Time (the “Governmental Bar Date”, and together with the General Bar
Date, the “Bar Dates”) as the last date and time for all governmental entities to file a proof of claim against the Company. Subject to certain exceptions, the Bar
Dates apply to all claims against the Debtors that arose prior to the Petition Date.
As of March 22, 2011, claims totaling $4.9 billion have been filed with the Bankruptcy Court against the Company, $3.8 billion of which have been
settled. In light of the Company’s emergence from bankruptcy on the Effective Date, the Company does not anticipate a significant number of new and
amended claims to be filed in the future. The Company has identified, and expects to continue to identify, many claims that the Company believes should be
disallowed by the Bankruptcy Court because they are duplicative, have been later amended or superseded, are without merit or are overstated or for other
reasons. As of March 22, 2011, the Bankruptcy Court has disallowed $1.1 billion of these claims and has not yet ruled on the Company’s other objections to
claims, the disputed portions of which aggregate to an additional $7.0 million. Additionally, $10.4 million of these claims have been withdrawn by the
respective creditors. The Company expects to continue to file objections in the future. Because the process of analyzing and objecting to claims will be ongoing,
the amount of disallowed claims may increase significantly in the future.
On the Effective Date, the Company distributed cash, entered into the Exit Credit Agreement, and issued shares of New Common Stock and warrants to
purchase shares of New Common Stock to satisfy $2.8 billion of claims. In addition, on the Effective Date, the Company established a cash reserve of $77.9
million and reserved 72,754 shares of New Common Stock and warrants to purchase 124,012 shares of New Common Stock for satisfaction of pending
claims. Subsequent to the Effective Date, the Company has made additional cash distributions from its reserve to satisfy claims as they are resolved. As a
result of these distributions, the cash reserve as of March 22, 2011, has been decreased to $64.6 million. As of March 22, 2011, 72,754 shares of New
Common Stock and warrants to purchase 124,012 shares of New Common Stock remain to be distributed in satisfaction of pending claims.
Through the claims resolution process, differences in amounts scheduled by the Company and claims filed by creditors will be investigated and resolved,
including through the filing of objections with the Bankruptcy Court where appropriate. In light of the substantial number and amount of claims filed, the
claims resolution process may take considerable time to complete, and we expect that it will continue after the Company’s emergence from Chapter 11.
Accordingly, the ultimate number and amount of allowed claims is not presently known, nor is the exact recovery with respect to allowed claims presently
known.


The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”),
which require management to make estimates and assumptions that affect reported amounts and disclosures.
81