FairPoint Communications 2011 Annual Report Download - page 124

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Table of Contents
(b) Legal Proceedings
From time to time, the Company is involved in litigation and regulatory proceedings arising out of its operations. The Company’s management believes
that it is not currently a party to any legal or regulatory proceedings, the adverse outcome of which, individually or in the aggregate, would have a material
adverse effect on the Company’s financial position or results of operations. Notwithstanding that we emerged from Chapter 11 protection on the Effective Date,
five of the Chapter 11 Cases are still being resolved.
On the Petition Date FairPoint Communications and substantially all of its direct and indirect subsidiaries filed voluntary petitions for relief under the
Chapter 11 Cases. On January 13, 2011, the Bankruptcy Court entered the Confirmation Order, which confirmed the Plan. On the Effective Date, the
Company substantially consummated the reorganization through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to
its terms.
On June 30, 2011, the Bankruptcy Court entered a final decree closing certain of the Company’s bankruptcy cases due to the closed cases being fully
administered. Of the 80 original bankruptcy cases, only five remain open. These cases are FairPoint Communications, Inc. (Case No. 09-16335), Northern
New England Telephone Operations LLC (Case No. 09-16365), Telephone Operating Company of Vermont LLC (Case No. 09-16410), MJD Services Corp.
(Case No. 09-16366) and Enhanced Communications of Northern New England Inc. (Case No. 09-16349).
(c) Service Quality Penalties
The Company is subject to certain retail service quality requirements in the states of Maine, New Hampshire and Vermont for the Northern New
England operations. Failure to meet these requirements in any of these states may result in penalties being assessed by the respective state regulatory body. The
Merger Orders provide that any penalties assessed by the states be paid by the Company in the form of credits applied to retail customer bills.
During February 2010, the Company entered into the Regulatory Settlements with the representatives for each of Maine, New Hampshire and Vermont
regarding modification of each state’s Merger Order, which have since been approved by the regulatory authorities in these states. The Regulatory Settlements
in New Hampshire and Vermont deferred final settlement of fiscal 2008 and 2009 SQI penalties until final 2010 SQI results were reported and approved by
the respective regulatory authorities. In each state, a provision in the respective orders identified key performance metrics in the 2010 SQI plans that, if met,
would reduce the 2008 and 2009 SQI penalties. The Company’s respective 2010 SQI results have been accepted in New Hampshire and Vermont and resulted
in reductions of the 2008 and 2009 SQI penalties, as applicable, of 60% in New Hampshire and 90% in Vermont. This reduced the Company’s accrual by
$13.8 million, of which $12.7 million and $1.1 million was recognized in 2010 and in 2011, respectively. In addition, the Regulatory Settlement for Maine
deferred the Company’s fiscal 2008 and 2009 SQI penalties until March 2010, at which time the Company began applying credits to customers’ bills.
As of December 31, 2011 and 2010, the Company recognized an estimated liability for service quality penalties based on the Company’s actual results
relative to the performance metrics measured by the respective SQI plans in Maine, New Hampshire and Vermont. The Company’s accrual at December 31,
2011 reflects an improvement in the Company’s performance, certain legislative and regulatory changes and the issuance of credits to customers in Maine
based on prior year penalties. No such credits were issued in New Hampshire or Vermont in 2011 as final disposition of SQI penalties were yet to be
determined. An increase in the estimated liability was recorded as a reduction to revenue for the 24 days ended January 24, 2011.
On February 13, 2012, the VT Public Service Board approved the Company’s request to use $6.6 million of the Amended Retail Service Quality Plan
and PAP Mode of Entry penalties to deploy broadband into unserved areas. Approximately $5.3 million of this amount is related to pre-bankruptcy and
therefore, is included in the Cash Claims Reserve.
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