10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011.

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File Number 001-32408

FairPoint Communications, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of	13-3725229 (I.R.S. Employer Identification No.)
Incorporation or Organization)
521 East Morehead Street, Suite 500 Charlotte, North Carolina	28202
(Address of Principal Executive Offices)	(Zip Code)

(704) 344-8150

(Registrant’s telephone number, including area code)

          Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

          Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes þ No o

          As of August 9, 2011, there were 26,193,040 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

          Documents incorporated by reference: None

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2011 (Successor Company) (Unaudited) and December 31, 2010 (Predecessor Company)		5
	Condensed Consolidated Statements of Operations for the three months ended June 30, 2011 (Successor Company), the 157 days ended June 30, 2011 (Successor Company), the 24 days ended January 24, 2011 (Predecessor Company) and the three and six months ended June 30, 2010 (Predecessor Company) (Unaudited)		6
	Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the 157 days ended June 30, 2011 (Successor Company) and the 24 days ended January 24, 2011 (Predecessor Company) (Unaudited)		7
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended June 30, 2011 (Successor Company), the 157 days ended June 30, 2011 (Successor Company), 24 days ended January 24, 2011 (Predecessor Company) and the three and six months ended June 30, 2010 (Predecessor Company) (Unaudited)		8
	Condensed Consolidated Statements of Cash Flows for the 157 days ended June 30, 2011 (Successor Company), the 24 days ended January 24, 2011 (Predecessor Company) and the six months ended June 30, 2010 (Predecessor Company) (Unaudited)		9
	Notes to Condensed Consolidated Financial Statements (Unaudited)		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		61
Item 4.	Controls and Procedures		62
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		64
Item 1A.	Risk Factors		64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		65
Item 3.	Defaults Upon Senior Securities		65
Item 4.	(Removed and Reserved)		65
Item 5.	Other Information		65
Item 6.	Exhibits		65
	Signatures		66
EX-10.26
EX-10.27
EX-21
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

          Some statements in this Quarterly Report are known as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements may relate to, among other things:

• risks related to our ability to meet our expectations with respect to our post-restructuring operating and financial objectives and the assumptions and business plan associated therewith;

• risks related to our reported financial information and operating results including with respect to our adoption of fresh start accounting and our actual results as compared to projected financial results;

• future performance generally and our share price as a result thereof;

• restrictions imposed by the agreements governing our indebtedness;

• our ability to satisfy certain financial covenants included in the agreements governing our indebtedness;

• financing sources and availability, and future interest expense;

• our ability to refinance our indebtedness on commercially reasonable terms, if at all;

• anticipated business development activities and future capital expenditures;

• the effects of regulation, including restrictions and obligations imposed by federal and state regulators as a condition to the approval of the Merger (as defined herein) and the Plan (as defined herein);

• material adverse changes in economic and industry conditions and labor matters, including workforce levels and labor negotiations, and any resulting financial or operational impact, in the markets we serve;

• material technological developments and changes in the communications industry, including disruption of our third party suppliers’ provisioning of critical products or services;

• the effects of competition on the markets we serve;

• use by customers of alternative technologies and the loss of access lines;

• availability and levels of regulatory support payments;

• availability of net operating loss (“NOL”) carryforwards to offset anticipated tax liabilities;

• our ability to meet obligations to our Company-sponsored pension plans and post-retirement healthcare plans; and

• changes in accounting assumptions that regulatory agencies, including the Securities and Exchange Commission (the “SEC”), may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings.

          These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this Quarterly Report that are not historical facts. When used in this Quarterly Report, the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed in this Quarterly Report and in “Part I — Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Annual Report”) and, as

3

amended or supplemented by “Part II — Item 1A. Risk Factors” contained in this Quarterly Report, as applicable. You should not place undue reliance on such forward-looking statements, which are based on the information currently available to us and speak only as of the date on which this Quarterly Report was filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent reports filed with the SEC on Forms 10-K, 10-Q and 8-K and Schedule 14A.

Except as otherwise required by the context, references in this Quarterly 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”.

4

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
June 30, 2011 and December 31, 2010
(in thousands, except share data)

	Successor Company			Predecessor Company
	June 30,			December 31,
	2011			2010
	(unaudited)
Assets
Current assets:
Cash	$	13,058		$	105,497
Restricted cash		37,498			2,420
Accounts receivable, net		119,857			125,170
Materials and supplies		820			22,193
Prepaid expenses		12,270			18,841
Other current assets		1,841			6,092
Deferred income tax, net		33,972			31,400
Total current assets		219,316			311,613
Property, plant and equipment, net		1,772,565			1,859,700
Goodwill		243,189			595,120
Intangible assets, net		151,926			189,247
Prepaid pension asset		3,927			2,960
Debt issue costs, net		2,109			119
Restricted cash		1,026			1,678
Other assets		9,394			13,357
Total assets	$	2,403,452		$	2,973,794
Liabilities and Stockholders’ Equity (Deficit)
Liabilities not subject to compromise:
Current portion of long-term debt	$	5,000		$	—
Current portion of capital lease obligations		1,249			1,321
Accounts payable		73,840			66,557
Claims payable and estimated claims accrual		39,108			—
Accrued interest payable		183			3
Other accrued liabilities		67,033			63,279
Total current liabilities		186,413			131,160
Capital lease obligations		3,308			3,943
Accrued pension obligation		90,971			92,246
Employee benefit obligations		347,018			344,463
Deferred income taxes		314,842			67,381
Unamortized investment tax credits		—			4,310
Other long-term liabilities		17,061			12,398
Long-term debt, net of current portion		995,000			—
Total long-term liabilities		1,768,200			524,741
Total liabilities not subject to compromise		1,954,613			655,901
Liabilities subject to compromise		—			2,905,311
Total liabilities		1,954,613			3,561,212
Stockholders’ equity (deficit):
Predecessor Company common stock, $0.01 par value, 200,000,000 shares authorized, issued and outstanding 89,440,334 shares at December 31, 2010		—			894
Additional paid-in capital, Predecessor Company		—			725,786
Successor Company common stock, $0.01 par value, 37,500,000 shares authorized, 26,195,265 shares issued and outstanding at June 30, 2011		262			—
Additional paid-in capital, Successor Company		500,097			—
Retained deficit		(51,520	)		(1,101,294	)
Accumulated other comprehensive loss		—			(212,804	)
Total stockholders’ equity (deficit)		448,839			(587,418	)
Total liabilities and stockholders’ equity (deficit)	$	2,403,452		$	2,973,794

See accompanying notes to condensed consolidated financial statements (unaudited).

5

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
Three Months ended June 30, 2011, 157 Days ended June 30, 2011,
24 Days ended January 24, 2011 and and Three and Six Months ended June 30, 2010
(Unaudited)
(in thousands, except per share data)

	Successor			Predecessor			Successor
	Company			Company			Company			Predecessor Company
	Three Months			Three Months			One Hundred Fifty-			Twenty-Four			Six Months
	Ended			Ended			Seven Days Ended			Days Ended			Ended
	June 30, 2011			June 30, 2010			June 30, 2011			January 24, 2011			June 30, 2010
				(Restated)									(Restated)
Revenues	$	262,636		$	271,563		$	451,038		$	66,378		$	542,364
Operating expenses:
Cost of services and sales, excluding depreciation and amortization		114,468			133,211			201,641			38,766			270,680
Selling, general and administrative expense, excluding depreciation and amortization		88,316			97,062			151,798			27,161			190,646
Depreciation and amortization		90,614			71,472			153,393			21,515			142,854
Reorganization related expense		2,510			—			5,246			—			—
Total operating expenses		295,908			301,745			512,078			87,442			604,180
Loss from operations		(33,272	)		(30,182	)		(61,040	)		(21,064	)		(61,816	)
Other income (expense):
Interest expense		(16,996	)		(35,721	)		(29,487	)		(9,321	)		(70,351	)
Other		350			105			831			(132	)		131
Total other expense		(16,646	)		(35,616	)		(28,656	)		(9,453	)		(70,220	)
Loss before reorganization items and income taxes		(49,918	)		(65,798	)		(89,696	)		(30,517	)		(132,036	)
Reorganization items		—			1,375			—			897,313			(15,216	)
(Loss) income before income taxes		(49,918	)		(64,423	)		(89,696	)		866,796			(147,252	)
Income tax benefit (expense)		22,821			10,245			38,176			(279,889	)		6,744
Net (loss) income	$	(27,097	)	$	(54,178	)	$	(51,520	)	$	586,907		$	(140,508	)
Weighted average shares outstanding:
Basic		25,652			89,424			25,644			89,424			89,424
Diluted		25,652			89,424			25,644			89,695			89,424
(Loss) earnings per share:
Basic	$	(1.06	)	$	(0.61	)	$	(2.01	)	$	6.56		$	(1.57	)
Diluted	$	(1.06	)	$	(0.61	)	$	(2.01	)	$	6.54		$	(1.57	)

See accompanying notes to condensed consolidated financial statements (unaudited).

6

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)
157 Days ended June 30, 2011 and 24 Days ended January 24, 2011
(Unaudited)
(in thousands)

													Accumulated
							Additional						other			Total
	Common Stock						paid-in			Retained			comprehensive			stockholders’
	Shares			Amount			capital			deficit			loss			equity (deficit)
Balance at December 31, 2010 (Predecessor Company)		89,440		$	894		$	725,786		$	(1,101,294	)	$	(212,804	)	$	(587,418	)
Net income		—			—			—			586,907			—			586,907
Stock based compensation expense		—			—			18			—			—			18
Employee benefit adjustment to comprehensive income		—			—			—			—			493			493
Cancellation of Predecessor Company Common Stock		(89,440	)		(894	)		(725,804	)		726,698			—			—
Elimination of Predecessor Company accumulated other comprehensive loss		—			—			—			(212,311	)		212,311			—
Issuance of Successor Company Common Stock		25,660			257			481,879			—			—			482,136
Issuance of Successor Company warrants		—			—			16,350			—			—			16,350
Balance at January 24, 2011 (Successor Company)		25,660		$	257		$	498,229		$	—		$	—		$	498,486
Net loss		—			—			—			(51,520	)		—			(51,520	)
Issuance of Successor Company Common Stock		539			5			(5	)		—			—			—
Issuance of restricted stock		7			—			—			—			—			—
Forfeiture of restricted stock		(11	)		—			—			—			—			—
Stock based compensation expense		—			—			1,873			—			—			1,873
Balance at June 30, 2011 (Successor Company)		26,195		$	262		$	500,097		$	(51,520	)	$	—		$	448,839

See accompanying notes to condensed consolidated financial statements (unaudited).

7

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Comprehensive (Loss) Income

Three Months ended June 30, 2011, 157 Days ended June 30, 2011,

24 Days ended January 24, 2011 and Three and Six Months ended June 30, 2010

(Unaudited)

(in thousands)

	Successor			Predecessor			Successor
	Company			Company			Company			Predecessor Company
	Three Months			Three Months			One Hundred Fifty-			Twenty-Four		Six Months
	Ended			Ended			Seven Days Ended			Days Ended		Ended
	June 30, 2011			June 30, 2010			June 30, 2011			January 24, 2011		June 30, 2010
				(Restated)								(Restated)
Net (loss) income	$	(27,097	)	$	(54,178	)	$	(51,520	)	$	586,907	$	(140,508	)
Other comprehensive income, net of taxes:
Defined benefit pension and post-retirement plans (net of $0 million, $1.0 million, $0 million, $0.5 million and $2.0 million tax expense, respectively)		-			1,502			-			493		3,004
Total other comprehensive income		-			1,502			-			493		3,004
Comprehensive (loss) income	$	(27,097	)	$	(52,676	)	$	(51,520	)	$	587,400	$	(137,504	)

See accompanying notes to condensed consolidated financial statements (unaudited).

8

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

157 Days ended June 30, 2011, 24 Days ended January 24, 2011

and the Six Months ended June 30, 2010

(Unaudited)

(in thousands)

	Successor Company			Predecessor Company
	One Hundred Fifty-			Twenty-Four			Six Months
	Seven Days Ended			Days Ended			Ended
	June 30, 2011			January 24, 2011			June 30, 2010
							(Restated)
Cash flows from operating activities:
Net (loss) income	$	(51,520	)	$	586,907		$	(140,508	)
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income taxes		(35,213	)		276,204			(6,753	)
Provision for uncollectible revenue		10,070			3,454			16,522
Depreciation and amortization		153,393			21,515			142,854
Post-retirement accruals		12,850			2,654			15,911
Pension accruals		4,779			986			4,307
Loss on abandoned projects		—			—			12,275
Other non cash items		22			130			1,642
Changes in assets and liabilities arising from operations:
Accounts receivable		(619	)		(7,752	)		(704	)
Prepaid and other assets		4,921			(3,423	)		(13,905	)
Accounts payable and accrued liabilities		7,790			30,258			29,632
Accrued interest payable		183			9,017			67,959
Other assets and liabilities, net		(1,457	)		177			(6,697	)
Reorganization adjustments:
Non-cash reorganization income		(709	)		(917,358	)		(20,246	)
Claims payable and estimated claims accrual		(55,858	)		(1,096	)		—
Restricted cash — cash claims reserve		46,932			(82,764	)		—
Total adjustments		147,084			(667,998	)		242,797
Net cash provided by (used in) operating activities		95,564			(81,091	)		102,289
Cash flows from investing activities:
Net capital additions		(93,369	)		(12,477	)		(103,222	)
Distributions from investments		618			—			79
Net cash used in investing activities		(92,751	)		(12,477	)		(103,143	)
Cash flows from financing activities:
Loan origination costs		(884	)		(1,500	)		(1,100	)
Proceeds from issuance of long-term debt		—			—			5,513
Restricted cash		1,372			34			(467	)
Repayment of capital lease obligations		(505	)		(201	)		(1,043	)
Net cash (used in) provided by financing activities		(17	)		(1,667	)		2,903
Net change		2,796			(95,235	)		2,049
Cash, beginning of period		10,262			105,497			109,355
Cash, end of period	$	13,058		$	10,262		$	111,404
Supplemental disclosure of cash flow information:
Capital additions included in accounts payable, claims payable and estimated claims accrual or liabilities subject to compromise at period-end		3,297			1,818			2,431
Reorganization costs paid		16,857			11,110			29,394

See accompanying notes to condensed consolidated financial statements (unaudited).

9

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

(1) Organization and Basis of Financial Reporting

     FairPoint is a leading provider of communications services in rural and small urban communities, primarily in northern New England, offering an array of services, including high speed data (“HSD”), Internet access, voice, television and broadband product offerings, to residential, wholesale and business customers. FairPoint operates in 18 states with approximately 1.4 million access line equivalents (including voice access lines and HSD, which include digital subscriber lines (“DSL”), wireless broadband, cable modem and fiber-to-the-premises) as of June 30, 2011.

     Basis of Financial Reporting in Reorganization

     On October 26, 2009 (the “Petition Date”), 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 Company’s Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as confirmed, the “Plan”) and on January 24, 2011 (the “Effective Date”) the Company emerged from Chapter 11 protection. 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. See note 2 for details of the remaining open cases.

     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.

     Upon the Effective Date, the Company adopted fresh start accounting in accordance with guidance under the applicable reorganization accounting rules, pursuant to which the Company’s reorganization value, which represents the fair value of the entity before considering liabilities, and approximates the amount a willing buyer would pay for the assets of the entity immediately after the reorganization, has been allocated to the fair value of assets in conformity with guidance under the applicable accounting rules for business combinations, using the purchase method of accounting. The amount remaining after allocation of the reorganization value to the fair value of identified tangible and intangible assets has been reflected as goodwill, which is subject to periodic evaluation for impairment. In addition to fresh start accounting, the Company’s future consolidated financial statements will reflect all effects of the transactions contemplated by the Plan. Accordingly, the Company’s future condensed consolidated statements of financial position and condensed consolidated statements of operations will not be comparable in many respects to the Company’s condensed consolidated statements of financial position and condensed consolidated statements of operations for periods prior to the adoption of fresh start accounting and prior to accounting for the effects of the reorganization. See note 2 for a presentation of the impact of emergence from reorganization and fresh start accounting on the Company’s financial position.

Restatement

     In its Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “2010 Annual Report”), the Company restated (the “Restatement”) its unaudited condensed consolidated financial statements for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010.

     The Company’s previously filed Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “June 30, 2010 Quarterly Report”), which was impacted by the Restatement, was not amended. Accordingly, the Company cautions you that certain information contained in the June 30, 2010 Quarterly Report should no longer be relied

10

upon, including the Company’s previously issued and filed June 30, 2010 interim consolidated financial statements and any financial information derived therefrom. In addition, the Company cautions you that other communications or filings related to the June 30, 2010 interim consolidated financial statements and which were filed or otherwise released prior to the filing of the 2010 Annual Report with the SEC, should no longer be relied upon. All financial information in this Quarterly Report for the three and six months ended June 30, 2010 affected by the Restatement adjustments reflect such financial information as restated.

The restated June 30, 2010 interim consolidated financial statements were corrected for the following errors:

     Project Abandonment Adjustment

     Certain capital projects, principally a wireless broadband fixed asset project, had been abandoned but the write-off of all of the related capitalized costs had not occurred in a timely manner.

     Costs Capitalized to Property, Plant and Equipment Adjustment

     Due to a backlog of capital projects not yet closed, certain costs (principally labor expenses) remained capitalized to property, plant and equipment rather than expensed.

     Application of Overhead Costs Adjustment

     An error was discovered in the application of overhead costs to capital projects.

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 the restatement of the June 30, 2010 interim consolidated financial statements, 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 were 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 aggregate impact of these adjustments resulted in an increase to the Company’s previously reported pre-tax loss for the three and six month period ended June 30, 2010 of approximately $17.6 million and $28.3 million, respectively, which is mainly attributable to a reduction to reported revenues of approximately $2.4 million and $6.0 million, respectively, an increase to the Company’s previously reported operating expenses of approximately $18.3 million and $25.5 million, respectively, offset by a decrease in other expense of $3.2 million and $3.2 million, respectively. The aggregate impact of the adjustments for the three and six months ended June 30, 2010 resulted in an increase in net loss of approximately $17.6 million and $28.3 million, net of taxes, respectively, and a decrease in the Company’s reported capital expenditures of approximately $6.7 million and $11.4 million, respectively.

     The Company expects that these adjustments will not have a material impact on the Company’s overall liquidity in the future.

(2) Reorganization Under Chapter 11

Emergence from Chapter 11 Proceedings

     On the Petition Date, the Debtors filed the Chapter 11 Cases.

11

     On January 13, 2011, the Bankruptcy Court entered into an Order Confirming Debtors’ Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated as of December 29, 2010 (the “Confirmation Order”), which confirmed the Plan.

     On the Effective Date, the Company substantially consummated its 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).

Plan of Reorganization

     General

     The Plan provided for the cancellation and extinguishment on the Effective Date of all of the Company’s equity interests outstanding on or prior to the Effective Date, including but not limited to all outstanding shares of the Company’s common stock, par value $0.01 per share (the “Old Common Stock”), options and contractual or other rights to acquire any equity interests.

     The Plan provided for:

• (i) The lenders under the Credit Agreement, dated as of March 31, 2008, by and among FairPoint Communications, Spinco, Bank of America, N.A. as syndication agent, Morgan Stanley Senior Funding, Inc. and Deutsche Bank Securities Inc., as co-documentation agents, and Lehman Commercial Paper Inc., as administrative agent, and the lenders party thereto (as amended, supplemented or otherwise modified from time to time, the “Pre-Petition Credit Facility”), (ii) the administrative agent under the Pre-Petition Credit Facility (other than certain indemnity and reimbursement rights of the administrative agent which survived) and (iii) holders of other claims against the Company arising under the Pre-Petition Credit Facility or ancillary agreements (including swap agreements) (collectively, the “Pre-Petition Credit Facility Claims”) to receive the following in full and complete satisfaction of such Pre-Petition Credit Facility Claims: (i) a pro rata share of a $1,000.0 million term loan facility (the “Exit Term Loan”), (ii) a pro rata share of certain cash payments, (iii) a pro rata share of 23,620,718 shares of our new common stock, par value $0.01 per share (the “New Common Stock” or “Common Stock”) and (iv) a pro rata share of a 55% interest in the FairPoint Litigation Trust (the “Litigation Trust”);

• Holders of allowed unsecured claims against FairPoint Communications, including the Pre-Petition Notes (as defined below) (the “FairPoint Communications Unsecured Claims”) to receive the following in full and complete satisfaction of such FairPoint Communications Unsecured Claims: (i) a pro rata share of 2,101,676 shares of New Common Stock, (ii) a pro rata share of a 45% interest in the Litigation Trust and (iii) a pro rata share of the warrants (the “Warrants”) issued by the Company in connection with a Warrant Agreement (the “Warrant Agreement”) that the Company entered into with The Bank of New York Mellon, as warrant agent, on the Effective Date; and

• Holders of allowed unsecured claims against the Company’s subsidiaries and holders of certain unsecured convenience claims against the Company to receive payment in full in cash in the amount of their allowed claims.

     In addition, the Plan also provided for:

• Certain of the Company’s employees and a consultant to receive (a) cash bonuses made pursuant to the FairPoint Communications, Inc. 2010 Success Bonus Plan (the “Success Bonus Plan”) and/or (b) New Common Stock awards, consisting of restricted shares of New Common Stock and/or options to purchase shares of New Common Stock, pursuant to the terms of the FairPoint Communications, Inc. 2010 Long Term Incentive Plan (the “Long

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Term Incentive Plan”); and

• Members of the Company’s board appointed on the Effective Date (the “New Board”) to receive options to purchase New Common Stock pursuant to the terms of the Long Term Incentive Plan.

     Finally, the Plan included certain discharges, releases, exculpations and injunctions that became effective on the Effective Date, including the following:

• Except as otherwise provided in the Plan, all existing claims against, and equity interests in, the Company that arose prior to the Effective Date were released, terminated, extinguished and discharged;

• In consideration of the services of the Released Parties (as defined in the Plan), the Company and all persons who held, or may have held, claims against, or equity interests in, the Company prior to the Effective Date released the Released Parties (as defined in the Plan) from claims, causes of action and liabilities related to the Company;

• None of the Company, the Released Parties (as defined in the Plan) or the Litigation Trustee (as defined below) shall have or incur any liability relating to or arising out of the Chapter 11 Cases; and

• Except as otherwise provided in the Plan, all persons are permanently enjoined from asserting claims, liabilities, causes of action, interest or remedies that are released or discharged pursuant to the Plan.

Termination of Material Agreements

     On the Effective Date, in accordance with the Plan, the Company terminated, among others, the following material agreements:

• The Pre-Petition Credit Facility (except that the Pre-Petition Credit Facility continues in effect solely for the purposes of allowing creditors under the Pre-Petition Credit Facility to receive distributions under the Plan and to preserve certain rights of the administrative agent), and all notes, security agreements, swap agreements and other agreements associated therewith;

• Each of the respective indentures governing (i) the 13-1/8% Senior Notes due April 1, 2018 (the “Old Notes”), which were issued pursuant to the Indenture, dated as of March 31, 2008, by and between Spinco and U.S. Bank National Association, as amended (the “Old Indenture”), and (ii) the 13-1/8% Senior Notes due April 2, 2018 (the “New Notes” and, together with the Old Notes, the “Pre-Petition Notes”), which were issued pursuant to the Indenture, dated as of July 29, 2009, by and between FairPoint Communications, Inc. and U.S. Bank National Association (the “New Indenture”) (except to the extent to allow the Company or the relevant Pre-Petition Notes indenture trustee, as applicable, to make distributions pursuant to the Plan on account of claims related to such Pre-Petition Notes); and

• The Debtor-in-Possession Credit Agreement, dated as of October 27, 2009 (as amended, the “DIP Credit Agreement”), by and among FairPoint Communications and FairPoint Logistics, Inc. (“FairPoint Logistics,” and together with FairPoint Communications, the “DIP Borrowers”), certain financial institutions (the “DIP Lenders”) and Bank of America, N.A., as the administrative agent for the DIP Lenders (the “DIP Administrative Agent”), which was terminated by its conversion into the new $75.0 million Exit Revolving Facility (as defined herein), and all notes, security agreements and other agreements related to the DIP Credit Agreement.

Exit Credit Agreement

     On the Effective Date, FairPoint Communications and FairPoint Logistics (the “Exit Borrowers”) entered into a $1,075.0 million senior secured credit facility with a syndicate of lenders and Bank of America, N.A., as the administrative agent for the lenders, arranged by Banc of America Securities LLC (the “Exit Credit Agreement”). The Exit Credit Agreement is comprised of a $75.0 million revolving loan facility (the “Exit Revolving Facility”),

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which has a sub-facility providing for the issuance of up to $30.0 million of letters of credit, and the Exit Term Loan (collectively, the “Exit Credit Agreement Loans”). On the Effective Date, the Company paid to the lenders providing the Exit Revolving Facility an aggregate fee equal to $1.5 million. Interest on the Exit Credit Agreement Loans accrues at an annual rate equal to either (a) the British Bankers Association LIBOR Rate (“LIBOR”) plus 4.50%, with a minimum LIBOR floor of 2.00% for the Exit Term Loan, or (b) a base rate plus 3.50% per annum in which base rate is equal to the highest of (x) Bank of America’s prime rate, (y) the federal funds effective rate plus 0.50% and (z) applicable LIBOR (with minimum LIBOR floor of 2.00%) plus 1.00%. In addition, the Company is required to pay a 0.75% per annum commitment fee on the average daily unused portion of the Exit Revolving Facility. The entire outstanding principal amount of the Exit Credit Agreement Loans is due and payable five years after the Effective Date (the “Exit Maturity Date”); provided that on the third anniversary of the Effective Date, the Company must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a continuation fee of $0.75 million and, on the fourth anniversary of the Effective Date, the Company must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a second continuation fee of $0.75 million. The Exit Credit Agreement requires quarterly repayments of principal of the Exit Term Loan after the first anniversary of the Effective Date. In the second and third years following the Effective Date, such quarterly payments shall each be in an amount equal to $2.5 million; during the fourth year following the Effective Date, such quarterly payments shall each be in an amount equal to $6.25 million; and for the first three quarters during the fifth year following the Effective Date, such quarterly payments shall each be in an amount equal to $12.5 million, with all remaining outstanding amounts owed in respect of the Exit Term Loan being due and payable on the Exit Maturity Date.

     The Exit Credit Agreement Loans are guaranteed by all of the Company’s current and future direct and indirect subsidiaries, other than (x) any subsidiary that is prohibited by applicable law from guaranteeing the obligations under the Exit Credit Agreement Loans and/or providing any security therefor without the consent of a state public utilities commission, and (y) any subsidiary of ours that is a controlled foreign corporation or a subsidiary that is held directly or indirectly by a controlled foreign corporation (the guarantor subsidiaries, together with FairPoint Communications and FairPoint Logistics, are collectively referred to as the “Exit Financing Loan Parties”). The Exit Credit Agreement Loans as a whole are secured by liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties, with first lien and payment waterfall priority for the Exit Revolving Facility and second lien priority for the Exit Term Loan.

     The Exit Credit Agreement contains customary representations, warranties and affirmative covenants. In addition, the Exit Credit Agreement contains restrictive covenants that limit, among other things, the ability of the Company to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock. The Exit Credit Agreement also contains minimum interest coverage and maximum total leverage maintenance covenants, along with a maximum senior leverage covenant measured upon the incurrence of certain types of debt. The Exit Credit Agreement contains certain events of default, including failure to make payments, breaches of covenants and representations, cross defaults to other material indebtedness, unpaid and uninsured judgments, changes of control and bankruptcy events of default. The lenders’ commitments to fund amounts under the Exit Revolving Facility are subject to certain customary conditions.

Certificate of Incorporation and By-laws

     Pursuant to the Plan, on the Effective Date, the Company filed with the Secretary of State of the State of Delaware the Ninth Amended and Restated Certificate of Incorporation of FairPoint Communications and adopted the Second Amended and Restated By-laws (the “By-laws”).

Departure and Appointment of Directors

     Pursuant to the Plan, as of the Effective Date, the following directors ceased to serve on the Company’s board of directors: Thomas F. Gilbane, Jr., Robert S. Lilien, Claude C. Lilly, Jane E. Newman and Michael R. Tuttle.

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     As of the Effective Date, the number of directors on the New Board was fixed at eight, with Todd W. Arden, Dennis J. Austin, Edward D. Horowitz, Michael J. Mahoney, Michael K. Robinson, David L. Treadwell and Wayne Wilson becoming members of the New Board and Mr. Horowitz was appointed to serve as chair of the New Board. Paul H. Sunu, the Company’s Chief Executive Officer, became a director of the Company effective as of August 24, 2010 and continues to serve as a director on the New Board.

     In accordance with the By-laws, the initial members of the New Board are expected to hold office until the first annual meeting of stockholders which will be held following the one year anniversary of the Effective Date. Thereafter, members of the New Board are expected to have one-year terms so that their terms will expire at each annual meeting of stockholders.

Registration Rights Agreement

     On the Effective Date, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with Angelo, Gordon & Co., L.P. (“Angelo Gordon”), on behalf of and as investment manager of the persons set forth in the Registration Rights Agreement (together with Angelo Gordon, the “Ten Percent Holders”) that hold in the aggregate at least 10% of our New Common Stock. Under the Registration Rights Agreement, the Ten Percent Holders are entitled to request an aggregate of two registrations of the Ten Percent Holders’ registrable securities; provided that no such rights shall be demanded prior to the expiration of 180 days from the Effective Date. If the Ten Percent Holders in the aggregate hold less than 7.5% of the then outstanding New Common Stock, such holders’ rights under the Registration Rights Agreement shall terminate.

Warrant Agreement

     On the Effective Date, the Company entered into the Warrant Agreement with the Bank of New York Mellon, as Warrant Agent. Pursuant to the Warrant Agreement, the Company issued or will issue the Warrants to purchase an aggregate of 3,582,402 shares of New Common Stock. The number of shares of New Common Stock issuable upon the exercise of the Warrants is subject to adjustment upon the occurrence of certain events described in the Warrant Agreement. The initial exercise price applicable to the Warrants is $48.81 per share of New Common Stock for which the Warrants may be exercised. The exercise price applicable to the Warrants is subject to adjustment upon the occurrence of certain events described in the Warrant Agreement. The Warrants may be exercised at any time on or before the seventh anniversary of the Effective Date. The Warrants, and all rights under the Warrants, are transferable as provided in the Warrant Agreement.

Litigation Trust Agreement

     On the Effective Date, the Company entered into the FairPoint Litigation Trust Agreement (the “Litigation Trust Agreement”) with Mark E. Holliday, as litigation trustee (the “Litigation Trustee”), and the official committee of unsecured creditors appointed in the Chapter 11 Cases, pursuant to which the Litigation Trust was established for the benefit of specified holders of allowed claims and for the pursuit of certain causes of action against Verizon arising in connection with the Agreement and Plan of Merger, dated as of January 15, 2007, by and among Verizon, Spinco and FairPoint Communications, as amended (the “Merger Agreement”). Pursuant to the Plan, the Company transferred such claims and causes of actions against Verizon related to the Merger Agreement to the Litigation Trust with title to such claims and causes of action being free and clear of all liens, charges, claims, encumbrances and interests except for the return to FairPoint Communications of any funds deposited in the Litigation Trust bank account. In addition, pursuant to the Plan, the Company transferred funds to the Litigation Trust to pay the reasonable costs and expenses associated with the administration of the Litigation Trust. Pursuant to the Litigation Trust Agreement, the Litigation Trustee may request additional funding for the Litigation Trust from the Company following the Effective Date; provided, that (i) any such additional funding will be subject to the approval of the New Board in its sole discretion, (ii) after giving effect to such additional funding, the Company’s cash on hand may not be less than $20.0 million (after taking into account the cash distributions to be made) and (iii) no proceeds of any borrowings under the Exit Revolving Facility may be used to fund such additional funding. The Litigation Trustee may prosecute the transferred claims and causes of action against Verizon as described in and authorized by

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the Plan and the Litigation Trust Agreement, make timely and appropriate distributions to the beneficiaries of the Litigation Trust and otherwise carry out the provisions of the Litigation Trust Agreement. During June 2011, the money in the Litigation Trust account was distributed to the trustee and is no longer held by the Company at June 30, 2011.

Long Term Incentive Plan and Success Bonus Plan

     As contemplated by the Plan, on the Effective Date, the Company was deemed to have adopted the Long Term Incentive Plan and the Success Bonus Plan.

     On the Effective Date, in accordance with the Plan, (i) certain of the Company’s employees and a consultant of the Company received (a) Success Bonuses of approximately $1.8 million in the aggregate pursuant to the terms of the Success Bonus Plan and/or (b) New Common Stock awards, consisting of restricted shares of New Common Stock and/or options to purchase shares of New Common Stock, pursuant to the terms of the Long Term Incentive Plan, and (ii) members of the New Board received restricted shares of New Common Stock and options to purchase New Common Stock pursuant to the terms of the Long Term Incentive Plan. The Success Bonuses were earned by the Company’s employees and were primarily based upon achieving certain performance measures. 3,134,603 shares of New Common Stock are reserved for awards under the Long Term Incentive Plan, of which stock options and restricted share awards were granted to certain of the Company’s employees, a consultant of the Company, and members of the New Board on the Effective Date. Specifically, on the Effective Date, (a) 460,294 shares of stock were distributed to management-level and other employees and a consultant of the Company, with 120,000 restricted shares issued to the Company’s Chief Executive Officer, 34,000 restricted shares issued to the Company’s Chief Financial Officer, 161,800 restricted shares issued to other members of the Company’s senior management and 66,794 unrestricted shares issued to David L. Hauser, the Company’s former Chief Executive Officer, who was a consultant through the Effective Date, (b) 87,498 shares of restricted stock were awarded to the members of the New Board and (c) stock options were granted with an exercise price of $24.29 for the purchase of (1) 859,000 shares of New Common Stock by management-level and other employees, with 125,000 options to purchase New Common Stock granted to the Company’s Chief Executive Officer, 42,000 options to purchase New Common Stock granted to the Company’s Chief Financial Officer and 236,500 options to purchase New Common Stock granted to other members of the Company’s senior management and (2) 132,012 shares of New Common Stock by members of the New Board. Except for the unrestricted shares awarded to David L. Hauser, these stock option and restricted share awards vested to the extent of 25% on the Effective Date, and the remainder of these awards is expected to vest in three equal annual installments, commencing on the first anniversary of the Effective Date, with accelerated vesting upon (x) a change in control, or (y) a termination of an award holder’s employment either without cause (but only to the extent the vesting becomes at least 50%, plus an additional 25% for each year of the award holder’s employment after the first year after the Effective Date) or due to the award holder’s death or disability (but, for stock options, only to the extent vesting would have otherwise occurred within one year following such termination of employment). Mr. Hauser’s shares were 100% vested on the Effective Date.

Regulatory Settlements

     In connection with the Chapter 11 Cases, the Company negotiated with representatives of the state regulatory authorities in each of Maine, New Hampshire and Vermont with respect to (i) certain regulatory approvals relating to the Chapter 11 Cases and the Plan and (ii) certain modifications to the requirements imposed by state regulatory authorities as a condition to approval of the Merger (each a “Merger Order,” and collectively, the “Merger Orders”). The Company agreed to regulatory settlements with the representatives for each of Maine, New Hampshire and Vermont regarding modification of each state’s Merger Order (each a “Regulatory Settlement,” and collectively, the “Regulatory Settlements”) which have since been approved by the regulatory authorities in these states.

Reporting Requirements

     In connection with the Chapter 11 Cases, regardless of the Effective Date having occurred, the Company is required to continue to file quarterly operating reports with the Bankruptcy Court until the Chapter 11 Cases have

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closed. Such reports have been and will be prepared according to requirements of federal bankruptcy law and related rules. While these reports accurately provide then-current information required under the Bankruptcy Code, they are nonetheless unaudited, are prepared in a format different from that used in our consolidated financial statements filed under the securities laws and certain of this financial information may be prepared on an unconsolidated basis. Accordingly, The Company believes that the substance and format of these reports do not allow meaningful comparison with our regular publicly-disclosed consolidated financial statements. Moreover, the quarterly operating reports filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to our securities, or for comparison with other financial information filed by the Company with the SEC.

Plan Injunction

     Except as otherwise provided in the Plan, the Confirmation Order enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against the Company or its properties to recover on, collect or secure a claim arising prior to the Effective Date. Thus, for example, creditor actions to obtain possession of property from the Company, or to create, perfect or enforce any lien against our property, or to collect on monies owed or otherwise exercise rights or remedies with respect to a claim arising prior to the Effective Date are enjoined except as provided in the Plan.

Impact on Net Operating Loss Carryforwards (“NOLs”)

     The Company’s NOLs were substantially reduced by the recognition of gains on the discharge of certain debt pursuant to the Plan. Further, the Company’s ability to utilize its NOL carryforwards will be limited by Section 382 of the Internal Revenue Code of 1986, as amended, as the debt restructuring resulted in an ownership change. In general, following an ownership change, a limitation is imposed on the amount of pre-ownership change NOL carryforwards that may be used to offset taxable income in each year following the ownership change. The Company plans to elect, pursuant to a special rule that is applicable to ownership changes resulting from a Chapter 11 reorganization, to calculate this annual limitation by increasing the value attributed to the Company’s stock prior to the ownership change by the amount of creditor claims surrendered or canceled during the reorganization. Specifically, the amount of the annual limitation would equal the “long-term tax-exempt rate” (published monthly by the Internal Revenue Service (the “IRS”)) for the month in which the ownership change occurs, which in the Company’s case is 4.10%, multiplied by the lesser of (i) the value of the Company’s stock immediately after, rather than immediately before, the ownership change, and (ii) the value of the Company’s pre-change assets. Any increase in the value attributed to the Company’s stock resulting from the ownership change effectively would increase the annual limitation on our NOLs.

     Any portion of the annual limitation on pre-ownership change NOLs that is not used to reduce taxable income in a particular year may be carried forward and used in subsequent years. The annual limitation is increased by certain built-in gains recognized (or treated as recognized) during the five years following the ownership change (up to the total amount of built-in gain that existed at the time of the ownership change). The Company expects the limitations on NOL carryforwards for the five years following an ownership change to be increased by built-in gains. The Company currently projects that all available NOL carryforwards, after giving effect to the reduction for debt discharged, will be utilized to offset future income within the NOL carryforward periods. Therefore, the Company does not expect to have NOL carryforwards after such time.

Financial Reporting in Reorganization

     The Reorganizations Topic of 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

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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 condensed consolidated financial statements have been prepared in accordance with the Reorganizations Topic of the ASC through the Effective Date. All pre-petition liabilities subject to compromise have been segregated in the condensed 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 condensed consolidated statements of operations for the twenty-four days ended January 24, 2011 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.

     Upon the Effective Date, the Company adopted fresh start accounting in accordance with guidance under the applicable reorganization accounting rules, pursuant to which the Company’s reorganization value, which represents the fair value of the entity before considering liabilities, and approximates the amount a willing buyer would pay for the assets of the entity immediately after the reorganization, has been allocated to the fair value of assets in conformity with guidance under the applicable accounting rules for business combinations, using the purchase method of accounting for business combinations. The amount remaining after allocation of the reorganization value to the fair value of identified tangible and intangible assets has been reflected as goodwill, which is subject to periodic evaluation for impairment. In addition to fresh start accounting, the Company’s future consolidated financial statements will reflect all effects of the transactions contemplated by the Plan. Accordingly, the Company’s future consolidated statements of financial position and consolidated statements of operations will not be comparable in many respects to the Company’s consolidated statements of financial position and consolidated statements of operations for periods prior to the adoption of fresh start accounting and prior to accounting for the effects of the reorganization.

Reorganization Items

     Reorganization items represent expense or income amounts that have been recognized as a direct result of the Chapter 11 Cases and are presented separately in the condensed consolidated statements of operations pursuant to the Reorganizations Topic of the ASC. Such items consist of the following (amounts in thousands):

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	Predecessor Company
	Twenty-Four		Three Months		Six Months
	Days Ended		Ended		Ended
	January 24, 2011		June 30, 2010		June 30, 2010
			(Restated)		(Restated)
Professional fees (a)	$	(13,965)	$	(18,788)	$	(33,527)
Success bonus (b)		—		(1,060)		(1,935)
Non-cash allowed claim adjustments (c)		—		—		(977)
Cancellation of debt income (d)		1,351,057		21,223		21,223
Goodwill adjustment (e)		(339,153)		—		—
Intangible assets adjustment (e)		(30,381)		—		—
Property, plant and equipment adjustment (e)		(69,036)		—		—
Pension and post-retirement healthcare adjustment (e)		22,076		—		—
Other assets and liabilities adjustment (e)		(16,037)		—		—
Tax account adjustments (e)		4,313		—		—
Other (f)		(11,561)		—		—
Total reorganization items	$	897,313	$	1,375	$	(15,216)

(a) Professional fees relate to legal, financial advisory and other professional costs directly associated with the reorganization process.

(b) Success bonus represents charges incurred relating to the Success Bonus Plan in accordance with the plan of reorganization.

(c) The carrying values of certain liabilities subject to compromise were adjusted to the value of the claim allowed by the Bankruptcy Court.

(d) Net gains and losses associated with the settlement of liabilities subject to compromise.

(e) Revaluation of long lived assets and certain assets and liabilities upon adoption of fresh start accounting.

(f) Includes expenses associated with the Long Term Incentive Plan, the Litigation Trust and the write-off of the predecessor company’s long-term incentive performance plan and director and officer policy.

     Professional fees directly associated with the reorganization process that have been incurred after the Effective Date are included in operating expenses as Reorganization related expense in the condensed consolidated statement of operations.

     Liabilities Subject to Compromise

     Liabilities subject to compromise refer to liabilities incurred prior to the Petition Date for which the Company has not received approval from the Bankruptcy Court to pay or otherwise honor. The amounts of the various categories of liabilities that are subject to compromise are set forth below. These amounts represent the estimates of known or potential Pre-Petition Date claims that are likely to be resolved in connection with the Chapter 11 Cases.

     At the Effective Date, all liabilities subject to compromise were either settled through issuance of cash, shares of New Common Stock or Warrants, or were included in the Company’s claims payable and estimated claims accrual (the “Claims Reserve”). As such, as of the Effective Date, no liabilities remain subject to compromise. Liabilities subject to compromise at December 31, 2010 consisted of the following (amounts in thousands):

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	Predecessor Company
	December 31, 2010
Senior secured credit facility	$	1,970,963
Senior Notes		549,996
Interest rate swap		98,833
Accrued interest		211,550
Accounts payable		57,640
Other accrued liabilities		16,129
Other long-term liabilities		200
Liabilities subject to compromise	$	2,905,311

     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.

     Magnitude of Potential Claims

     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 August 9, 2011, claims totaling $4.9 billion have been filed with the Bankruptcy Court against the Company, $2.8 billion of which have been settled and $1.1 billion of which have been disallowed by the Bankruptcy Court. Additionally, $6.2 million of these claims have been withdrawn by the respective creditors and $1.0 billion of these claims remain open, pending settlement or objection. The Company expects the majority of these pending claims to be disallowed. 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. 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 satisfy $2.8 billion of claims. In addition, on the Effective Date, the Company established a cash reserve to pay outstanding bankruptcy claims and various other bankruptcy related fees (the “Cash Claims Reserve”) of $82.8 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 Cash Claims Reserve and issued additional shares of New Common Stock to satisfy claims as they are resolved. As a result of these distributions, the Cash Claims Reserve as of August 9, 2011, has been decreased to $34.4 million. As of August 9, 2011, 70,296 shares of New Common Stock and Warrants to purchase 119,821 shares of New Common Stock remain to be distributed in satisfaction of pending claims.

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     Through the claims resolution process, differences in amounts scheduled by the Company and claims filed by creditors are being 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 will take considerable time to complete. 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.

Fresh Start Accounting

     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 were applied on the Effective Date pursuant to the provisions of the Reorganizations Topic of the ASC. The adoption of fresh start accounting results in a new reporting entity. 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. All periods as of and after the Effective Date are referred to as the Successor Company, whereas all periods preceding the Effective Date are referred to as the Predecessor Company. With the exception of deferred taxes and assets and liabilities associated with pension and post-retirement health plans, which are recorded in accordance with the Income Taxes Topic of the ASC and the Compensation Topic of the ASC, respectively, all Successor Company assets and liabilities are recorded at their estimated fair values upon the Effective Date and the Predecessor Company’s retained deficit and accumulated other comprehensive income are eliminated. Any presentation of the Successor Company represents the financial position and results of operations of the new reporting entity and is not comparable to prior periods.

     Under the Reorganization Topic of the ASC, the Company was required to apply the provisions of fresh start accounting to its financial statements because (i) the reorganization value of the assets of the emerging entity immediately before the date of confirmation was less than the total of all post-petition liabilities and allowed claims and (ii) the holders of the existing voting shares of the predecessor’s common stock immediately before confirmation received less than 50 percent of the voting shares of the emerging entity.

     In accordance with fresh start accounting, which incorporates the acquisition method of accounting for business combinations in the Business Combinations Topic of the ASC, the Company recorded the assets and non-interest bearing liabilities at fair value, with the exception of deferred taxes and assets and liabilities associated with pension and post-retirement health plans, which were recorded in accordance with the Income Taxes Topic of the ASC and the Compensation Topic of the ASC, respectively. The Company also recorded the Successor Company debt and equity at fair value utilizing the total enterprise value of approximately $1.5 billion, which was determined in conjunction with the confirmation of the Plan in part based on a set of financial projections for the Successor Company. The enterprise value is dependent upon achieving the future financial results set forth in the Company’s projections, as well as the realization of certain other assumptions. There can be no assurance that the projections will be achieved or that the assumptions will be realized.

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     The implementation of the Plan and the adoption of fresh start accounting in the Company’s consolidated balance sheet as of January 24, 2011 are as follows:

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
Reorganized Condensed Consolidated Balance Sheet
As of January 24, 2011
(Unaudited)
(in thousands, except share data)

	Predecessor		Reorganization			Fresh Start
	Company		Adjustments (a)			Adjustments (b)			Successor Company
Assets
Current assets:
Cash	$	101,703		(91,441)	(c)		—		$	10,262
Restricted cash		2,386		82,764	(c)		—			85,150
Accounts receivable, net		129,308		—			—			129,308
Materials and supplies		24,776		—			(24,098)	(l)		678
Prepaid expenses		17,152		—			(2,347)			14,805
Other current assets		8,620		—			(4,247)			4,373
Deferred income tax, net		31,400		—			—			31,400
Total current assets		315,345		(8,677)			(30,692)			275,976
Property, plant, and equipment net		1,852,508		—			(28,838)	(f)(l)		1,823,670
Goodwill		595,120		—			(351,931)	(i)		243,189
Intangible assets, net		187,791		—			(30,381)	(g)		157,410
Prepaid pension asset		3,053		—			363	(h)		3,416
Debt issue costs, net		—		2,366	(d)		—			2,366
Restricted cash		1,678		—			—			1,678
Other assets		13,040		—			(3,874)	(l)		9,166
Total assets	$	2,968,535		(6,311)			(445,353)		$	2,516,871
Liabilities and Stockholders’ Equity (Deficit)
Liabilities not subject to compromise:
Current portion of long-term debt	$	—		—			—		$	—
Current portion of capital lease obligations		1,233		—			—			1,233
Accounts payable		98,674		(23,735)			—			74,939
Claims payable and estimated claims accrual		—		94,292	(c)		—			94,292
Other accrued liabilities		61,065		(1,800)	(c)		(4,457)	(h)		54,808
Total current liabilities		160,972		68,757			(4,457)			225,272
Capital lease obligations		3,831		—			—			3,831
Accrued pension obligation		93,033		—			(7,905)	(h)		85,128
Employee benefit obligations		346,853		—			(13,599)	(h)		333,254
Deferred income taxes		56,408		331,493	(j)		(40,124)	(j)		347,777
Unamortized investment tax credits		4,313		—			(4,313)	(j)		—
Other long-term liabilities		12,079		(2,094)	(c)		13,138			23,123
Long-term debt, net of current portion		—		1,000,000	(d)		—			1,000,000
Total long-term liabilities		516,517		1,329,399			(52,803)			1,793,113
Total liabilities not subject to compromise		677,489		1,398,156			(57,260)			2,018,385
Liabilities subject to compromise		2,910,952		(2,910,952)			—			—
Total liabilities		3,588,441		(1,512,796)			(57,260)			2,018,385
Stockholders’ equity (deficit):
Predecessor Company common stock		894		(894)			—			—
Additional paid-in capital, Predecessor Company		725,804		(725,804)			—			—
Successor Company common stock		—		257	(i)		—			257
Additional paid-in capital, Successor Company		—		498,229	(i)		—			498,229
Retained deficit		(1,134,293)		1,734,697	(e)		(600,404)	(k)		—
Accumulated other comprehensive loss		(212,311)		—			212,311			—
Total stockholders’ equity (deficit)		(619,906)		1,506,485			(388,093)			498,486
Total liabilities and stockholders’ equity (deficit)	$	2,968,535		(6,311)			(445,353)		$	2,516,871

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(a) Represents amounts recorded for the implementation of the Plan on the Effective Date. This includes the settlement of liabilities subject to compromise, distributions of cash, authorization and partial distribution of shares of New Common Stock and Warrants, designation of restricted cash to satisfy allowed claims and the cancellation of predecessor Old Common Stock resulting in a pre-tax gain of approximately $1,351.0 million on extinguishment of obligations pursuant to the Plan and the related tax effects. The following reflects the calculation of the pre-tax gain (in thousands, unaudited):

Liabilities subject to compromise	$	2,910,952
Less: Transfer to claims reserve		(66,893
Remaining liabilities subject to compromise		2,844,059
Less: Issuance of debt and equity
New long-term debt		(1,000,000)
Successor common stock (at par value)		(251)
Successor additional paid-in capital		(476,403)
Successor warrants		(16,350)
Pre-tax gain from cancellation and satisfaction of predecessor debt	$	1,351,055

(b)	Represents the adjustments of assets and liabilities to fair value or other measurement in conjunction with adoption of fresh start accounting.
(c)	Records the Claims Reserve and the Cash Claims Reserve restricted for satisfaction of the reserve. The following reflects the components of the Claims Reserve (in thousands, unaudited):

Liabilities subject to compromise to be satisfied in cash	$	66,893
Professional and restructuring fees		24,601
Other		9,894
Claims Reserve before emergence date payments		101,388
Less: Professional and restructuring fee payments		(7,096	)
Claims Reserve at emergence	$	94,292

The decrease in cash of $91.4 million at emergence is comprised of a reclassification of $82.8 million of operating cash to the Cash Claims Reserve within restricted cash to satisfy the Claims Reserve, $1.5 million of fees paid relating to debt financing and cash payments of $7.1 million for professional and restructuring fees. Tax claims were included in the Claims Reserve but were not included in the Cash Claims Reserve, because they were not required to be so included.

(d)

Records the issuance of senior secured debt and related debt financing. Debt issuance costs of $2.4 million ($1.5 million paid in cash on the Effective Date) related to the Exit Credit Agreement Loans are recorded in Debt issue costs, net and will be amortized over the terms of the respective agreements.

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(e) Reflects the cumulative impact of the reorganization adjustments (in thousands, unaudited):

Pre-tax gain from cancellation and satisfaction of predecessor debt	$	1,351,055
Income tax impact		(331,495)
Other		(11,561)
Total impact on condensed consolidated statement of operations	$	1,007,999
Cancellation of predecessor common stock and additional paid-in capital		726,698
Total reorganization adjustments	$	1,734,697

(f) Reflects the fair values of property, plant and equipment in connection with fresh start accounting. Fair value estimates were based on the following valuation methods:

• Land was valued using a combination of the market approach, which was primarily based on pertinent local sales and listings data, and the indirect cost approach, in which market trending indices were applied to the historical capital cost.

• Other real property such as buildings, building improvements and leasehold improvements were valued using either: (1) current market cost to construct improvements where information regarding size, age, construction type, etc. was available and (2) current market trending indices applied to historical capital costs where such detailed information was not available.

• Network assets (including central office and outside communications plant equipment) were valued using a combination of the direct replacement cost approach to value outside communications plant assets and an indirect cost approach in which current market trending indices were applied to the historical capital cost.

• Other personal property such as furniture, fixtures and other equipment were valued using a combination of a “percent of cost” market approach and an indirect cost approach based on replacement costs and current market trending indices.

	The indices utilized are selected from industry accepted and published cost indices including the Bureau of Labor Statistics, Marshall Valuation Service, Consumer Price Indices, NACREIF Property Index and AUS Telephone Plant Index.
(g)	Reflects the fair value of identifiable intangible assets in connection with fresh start accounting. The Company recognized a $99.0 million customer list intangible asset, a $58.0 million trade name intangible asset related to the FairPoint Communications trade name and a $0.4 million favorable leasehold agreement intangible asset.

• The customer list asset was valued based on a cost method which utilized average cost to acquire a new line multiplied by the number of existing lines within the FairPoint network.

• The trade name was valued based on the relief-from-royalty method which utilized projected revenue (excluding wholesale revenue), the royalty rate that would be charged by an asset licensor to an unrelated licensee, and a discount rate.

(h) An adjustment of $22.1 million (net) was recorded to measure the pension and other postretirement employee benefit obligations as of the Effective Date. This adjustment primarily reflects the change in the weighted average

24

discount rate applied to projected benefit obligations from the prior measurement date to the Effective Date. The discount rates applied to projected obligations changed as follows:

	January 24,			December 31,
	2011			2010
Pension Discount Rate — Management		5.22	%		5.07	%
Pension Discount Rate — Associate		5.84	%		5.64	%
Post-retirement Healthcare Discount Rate — Management		5.64	%		5.45	%
Post-retirement Healthcare Discount Rate — Associate		5.85	%		5.65	%

(i) Reconciliation of enterprise value to the reorganization value of FairPoint assets, determination of goodwill and reconciliation of reorganization value of FairPoint assets to the Successor Company equity (in thousands, unaudited):

Business Enterprise Value	$	1,498,486
Plus: Non-debt liabilities		1,018,385
Reorganization Value of FairPoint Assets	$	2,516,871
Fair value of FairPoint assets (excluding goodwill)		(2,273,682)
Reorganization Value in Excess of Fair Value (Goodwill)	$	243,189

During the second quarter of 2011, the Company made a reclassification adjustment to Property, Plant and Equipment related to fresh start accounting, which reduced goodwill by $12.8 million to $243.2 million.

Reorganization Value of FairPoint Assets	$	2,516,871
Less: Non-debt liabilities		(1,018,385)
Debt		(1,000,000)
New Common Stock ($257) and Additional Paid-in- Capital ($498,229)	$	498,486

(j)	Reflects the re-measurement of the Company’s deferred tax assets and liabilities, unrecognized tax benefits and other tax related accounts as a result of implementing the plan of reorganization and fresh start accounting in accordance with accounting guidance.
(k)	Reflects the adjustment of assets and liabilities to fair value or other measurement as specified in accounting guidance related to business combinations as follows (in thousands, unaudited):

Elimination of predecessor goodwill	$	595,120
Elimination of predecessor intangible assets		187,791
Property, plant and equipment adjustment		56,258
Successor unfavorable agreement liabilities		13,690
Successor intangible assets		(157,410)
Successor goodwill		(243,189)
Pension and post-retirement health actuarial gain		(22,076)
Income tax impact		(40,124)
Other adjustments		(1,967)
Total impact on condensed consolidated statement of operations	$	388,093
Elimination of accumulated other comprehensive loss		212,311
Total fair value adjustments and elimination of predecessor accumulated other comprehensive loss	$	600,404

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(l) In conjunction with fresh start accounting, management of the Successor Company has changed its accounting policy to classify certain items relating to future use in capital projects with property, plant and equipment. As a result of this change in policy, management reclassified $24.1 million from materials and supplies and $3.3 million from other long-term assets to property, plant and equipment.

(3) Accounting Policies

     In accordance with fresh start accounting, all assets and non-interest bearing liabilities were recorded at fair value on the Effective Date. Subsequent to being recorded at fair value, except for certain materials and supplies as noted above, these assets and liabilities continued to be accounted for in the manner in which they were accounted for prior to the Effective Date.

(a) Presentation and Use of Estimates

     The accompanying condensed 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. Actual results could differ from those estimates. The condensed consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The Company has reclassified certain prior period amounts in the condensed consolidated financial statements to be consistent with current period presentation. These reclassifications were made to correct the classification of performance assurance plans (“PAP”) penalties from selling, general and administrative expenses to contra-revenue and to correct the allocation of certain employee and general computer expenses between cost of services and selling, general and administrative expenses. Correction of these classification errors resulted in a decrease of $0.1 million and $0.9 million, respectively, to revenue, an increase of $2.4 million and $2.2 million, respectively, to cost of services, and a decrease of $2.5 million and $3.2 million, respectively, to selling, general and administrative expenses for the three and six months ended June 30, 2010. Correction of these classification errors had no impact on loss from operations or net loss.

     Examples of significant estimates include the allowance for doubtful accounts, revenue reserves, the recoverability of property, plant and equipment, valuation of intangible assets, pension and post-retirement benefit assumptions and income taxes. In addition, estimates have been made in determining the amounts and classification of certain liabilities subject to compromise.

(b) Revenue Recognition

     Revenues are recognized as services are rendered and are primarily derived from the usage of the Company’s networks and facilities or under revenue-sharing arrangements with other communications carriers. Revenues are primarily derived from: access, pooling, voice services, Universal Service Fund receipts, Internet and broadband services, and other miscellaneous services. Local access charges are billed to local end users under tariffs approved by each state’s Public Utilities Commission (“PUC”). Access revenues are derived for the intrastate jurisdiction by billing access charges to interexchange carriers and to other local exchange carriers (“LECs”). These charges are billed based on toll or access tariffs filed with the local state’s PUC. Access charges for the interstate jurisdiction are billed in accordance with tariffs filed by the National Exchange Carrier Association or by the individual company and filed with the Federal Communications Commission (the “FCC”).

     Revenues are determined on a bill-and-keep basis or a pooling basis. If on a bill-and-keep basis, the Company bills the charges to either the access provider or the end user and keeps the revenue. If the Company participates in a pooling environment (interstate or intrastate), the toll or access billed is contributed to a revenue pool. The revenue is then distributed to individual companies based on their company-specific revenue requirement. This distribution is based on individual state PUCs’ (intrastate) or the FCC’s (interstate) approved separation rules and rates of return. Distribution from these pools can change relative to changes made to expenses, plant investment, or rate-of-return. Some companies participate in federal and certain state universal service programs that are pooling in nature but are

26

regulated by rules separate from those described above. These rules vary by state. Revenues earned through the various pooling arrangements are initially recorded based on the Company’s estimates.

     Long distance retail and wholesale services can be recurring due to coverage under an unlimited calling plan or usage sensitive. In either case, they are billed in arrears and recognized when earned. Internet and data services revenues are substantially all recurring revenues and are billed one month in advance and deferred until earned.

     As of June 30, 2011 and December 31, 2010, unearned revenue of $16.6 million and $15.3 million, respectively, was included in other accrued liabilities on the condensed consolidated balance sheet. The majority of the Company’s miscellaneous revenue is provided from billing and collection and directory services. The Company earns revenue from billing and collecting charges for toll calls on behalf of interexchange carriers. The interexchange carrier pays a certain rate per each minute billed by the Company. The Company recognizes revenue from billing and collection services when the services are provided.

     Internet and broadband services and certain other services are recognized in the month the service is provided.

     Non-recurring customer activation fees, along with the related costs up to, but not exceeding, the activation fees, are deferred and amortized over the customer relationship period.

     Service quality index (“SQI”) penalties and certain PAP penalties are recorded as a reduction to revenue. SQI penalties for Maine, New Hampshire and Vermont are recorded to other accrued liabilities on the consolidated balance sheets. PAP penalties for Maine and New Hampshire are recorded as a reduction to accounts receivable since these penalties are paid by the Company in the form of credits applied to the Competitive Local Exchange Carrier (“CLEC”) bills. PAP penalties in Vermont are recorded to other accrued liabilities as a majority of these penalties are paid to the Vermont Universal Service Fund, while the remaining credits assessed in Vermont are paid by the Company in the form of credits applied to CLEC bills.

     Revenue is recognized net of tax collected from customers and remitted to governmental authorities.

     Management makes estimated adjustments, as necessary, to revenue or accounts receivable for billing errors, including certain disputed amounts.

(c) Restricted Cash

     As of June 30, 2011, the Company had $35.8 million of restricted cash from which outstanding bankruptcy claims and various other bankruptcy related fees will be paid, $2.0 million of restricted cash for removal of dual poles in Vermont and $0.7 million of cash restricted for other purposes.

     In total, the Company had $38.5 million of restricted cash at June 30, 2011 of which $37.5 million is shown in current assets and $1.0 million is shown as a non-current asset on the condensed consolidated balance sheet.

(d) Materials and Supplies

     Prior to the Effective Date, materials and supplies included new and reusable supplies and network equipment, which were stated principally at average original cost, except that specific costs were used in the case of large individual items.

     Materials and supplies of the Successor Company consist of finished goods and are stated at the lower of cost or market value. Cost is determined using either an average original cost or specific identification method of valuation.

(e) Property, Plant and Equipment

     Prior to the Effective Date, property, plant and equipment of the Predecessor Company was recorded at cost. Depreciation expense was principally based on the composite group remaining life method and straight-line

27

composite rates. This method provides for the recognition of the cost of the remaining net investment in telephone plant, property and equipment less anticipated positive net salvage value, over the remaining asset lives. This method requires the periodic revision of depreciation rates.

     When depreciable telephone plant used in the Company’s wireline network is replaced or retired, the carrying amount of such plant is deducted from the respective accounts and charged to accumulated depreciation. No gain or loss is recognized on disposition of assets.

     Network software purchased or developed in connection with related plant assets is capitalized. The Company also capitalizes interest associated with the acquisition or construction of network related assets. Capitalized interest is reported as part of the cost of the network related assets and as a reduction in interest expense.

     In connection with the Company’s adoption of fresh start accounting on the Effective Date, property, plant and equipment assets were revalued to their fair value, generally their appraised value after considering economic obsolescence, and new remaining useful lives were established. Accumulated depreciation was reset to zero. The appraisals assigned remaining useful lives to each asset ranging from two to twenty-three years. The revalued assets will be depreciated over these estimated remaining useful lives under the same method utilized for the Predecessor Company assets.

     Property additions after the Effective Date are recorded and depreciated in a manner consistent with the Predecessor Company utilizing the estimated asset lives presented in the following table:

	Average Life
Category	(In Years)
Buildings		45
Central office equipment		5 – 11
Outside communications plant
Copper cable		15 – 18
Fiber cable		25
Poles and conduit		30 – 50
Furniture, vehicles and other		3 – 15

     The Company believes that current estimated useful asset lives are reasonable, although they are subject to regular review and analysis. In the evaluation of asset lives, multiple factors are considered, including, but not limited to, the ongoing network deployment, technology upgrades and enhancements, planned retirements and the adequacy of reserves.

(f) Computer Software and Interest Costs

     The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software which has a useful life in excess of one year in accordance with the Intangibles-Goodwill and Other Topic of the ASC. Capitalized costs include direct development costs associated with internal use software, including direct labor costs and external costs of materials and services.

     Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred.

     In addition, the Company capitalizes the interest cost associated with the period of time over which the Company’s internal use software is developed or obtained in accordance with the Interest Topic of the ASC. The Company did not capitalize interest costs incurred during the pendency of the Chapter 11 Cases, as payments on all interest obligations were stayed as a result of the filing of the Chapter 11 Cases. Upon entry into the Exit Credit Agreement on the Effective Date, the Company resumed capitalization of interest costs.

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     During the three months ended June 30, 2011, the 157 days ended June 30, 2011 and the 24 days ended January 24, 2011, the Company capitalized $4.4 million, $8.5 million and $1.3 million, respectively, in software costs and less than $0.1 million in interest costs.

(g) Debt Issue Costs

     The Company entered into the DIP Credit Agreement on October 27, 2009. The Company incurred $0.9 million of debt issue costs associated with the DIP Credit Agreement and began to amortize these costs over the nine-month life of the DIP Credit Agreement using the effective interest method. Concurrent with the final order of the Bankruptcy Court, dated March 11, 2010 (the “Final DIP Order”), the Company incurred an additional $1.1 million of debt issue costs associated with the DIP Credit Agreement and began to amortize these costs over the remaining life of the DIP Credit Agreement using the effective interest method. On October 22, 2010, the Company incurred an additional $0.4 million of debt issue costs to extend the DIP Credit Agreement through January 2011. The Company has amortized these costs over the extended life of the DIP Credit Agreement.

     On the Effective Date, the Company entered into the Exit Credit Agreement. The Company incurred $2.4 million of debt issue costs associated with the Exit Credit Agreement and began to amortize these costs over a weighted average life of 3.7 years using the effective interest method.

     As of June 30, 2011 and December 31, 2010, the Company had capitalized debt issue costs of $2.1 million and $0.1 million, respectively, net of amortization.

(h) Goodwill and Other Intangible Assets

     As of December 31, 2010, goodwill consisted of the difference between the purchase price incurred in the acquisition of Legacy FairPoint (FairPoint Communications, Inc. exclusive of the local exchange business acquired from Verizon and its subsidiaries after giving effect to the Merger (the “Northern New England operations”)), using the purchase method of accounting and the fair value of net assets acquired. Upon the Effective Date, goodwill consists of the difference between the reorganization value of the predecessor company and the fair value of net assets using the acquisition method of accounting for business combinations in the Business Combinations Topic of the ASC. In accordance with the Intangibles — Goodwill and Other Topic of the ASC, goodwill is not amortized, but is assessed for impairment at least annually.

     Goodwill impairment is determined using a two-step process. Step one compares the estimated fair value of the Company’s single wireline reporting unit (calculated using both the market approach and the income approach) to its carrying amount, including goodwill. The market approach compares the fair value of the Company, as measured by its market capitalization, to the carrying amount of the Company, which represents its stockholders’ equity balance. Effective January 1, 2011, step one of the goodwill impairment test was amended for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform step two of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist.

     Step two compares the implied fair value of the Company’s goodwill (i.e., the fair value of the Company less the fair value of the Company’s assets and liabilities, including identifiable intangible assets) to its goodwill carrying amount. If the carrying amount of the Company’s goodwill exceeds the implied fair value of the goodwill, the excess is required to be recorded as an impairment.

     During this assessment, management relies on a number of factors, including operating results, business plans and anticipated future cash flows. The Company performed step one of its annual goodwill impairment assessment as of October 1, 2010 and concluded that there was no impairment at that time.

     Given that the significant decline in the Company’s stock price since the Effective Date has caused its market capitalization to be below its book value, the Company reviewed indicators of impairment specified by the Intangibles — Goodwill and Other Topic of the ASC and concluded that it does not believe a triggering event has

29

occurred. Therefore, an interim goodwill impairment test is not warranted at June 30, 2011. If this condition continues, it could imply that our goodwill may not be recoverable, thereby requiring an interim impairment test at September 30, 2011 or future periods that may result in a non-cash write-down of goodwill, which could have a significant adverse impact on our results of operations.

     During the second quarter of 2011, the Company made a reclassification adjustment to Property, Plant and Equipment based on fresh start accounting guidance, which reduced goodwill by $12.8 million. As of June 30, 2011 and December 31, 2010, the Company had goodwill of $243.2 million and $595.1 million, respectively.

     In connection with the Company’s adoption of fresh start accounting on the Effective Date, intangible assets and related accumulated amortization of the Predecessor Company were eliminated. Intangible assets of the Successor Company were identified and valued at their fair value, as determined by valuation specialists. The Company’s intangible assets are as follows (in thousands):

	Successor			Predecessor
	Company			Company
	At			At
	June 30,			December 31,
	2011			2010
Customer lists (weighted average 9.0 years and 9.7 years for Successor Company and Predecessor Company, respectively):
Gross carrying amount	$	99,000		$	208,504
Less accumulated amortization		(5,417	)		(62,073)
Net customer lists		93,583			146,431
Trade name (indefinite life):
Gross carrying amount		58,000			42,816
Favorable leasehold agreements (weighted average 2.7 years):
Gross carrying amount		410			—
Less accumulated amortization		(67)			—
Net favorable leasehold agreements		343			—
Total intangible assets, net	$	151,926		$	189,247

     The Company’s only non-amortizable intangible asset other than goodwill is the FairPoint trade name. Consistent with the valuation methodology used to value the trade name at the Effective Date, the Company assesses the fair value of the trade name based on the relief from royalty method. If the carrying amount of the trade name exceeds its estimated fair value, the asset is considered impaired. The Company performed its annual non-amortizable intangible asset impairment assessment as of October 1, 2010 and concluded that there was no indication of impairment at that time. As of December 31, 2010, as a result of changes to the Company’s financial projections related to the Chapter 11 Cases, the Company determined that a possible impairment of its non-amortizable intangible assets was indicated. The Company performed an interim non-amortizable intangible asset impairment assessment as of December 31, 2010 and determined that the trade name was not impaired.

     Given that the significant decline in the Company’s stock price since the Effective Date has caused its market capitalization to be below its book value, the Company reviewed impairment triggering events specified by the Intangibles — Goodwill and Other Topic of the ASC and concluded that it does not believe a triggering event has occurred. Therefore, an interim non-amortizable intangible asset impairment test on the trade name is not warranted at June 30, 2011. If this condition continues, it could imply that the value of our trade name may not be recoverable, thereby requiring an interim impairment test at September 30, 2011 or future periods that may result in a non-cash

30

write-down of the trade name, which could have a significant adverse impact on our results of operations.

     For its non-amortizable intangible asset impairment assessments, the Company makes certain assumptions including an estimated royalty rate, a long-term growth rate, an effective tax rate and a discount rate, and applies these assumptions to projected future cash flows. Changes in one or more of these assumptions may result in the recognition of an impairment loss.

     The Company’s amortizable intangible assets consist of customer lists and favorable leasehold agreements. Amortizable intangible assets must be reviewed for impairment whenever indicators of impairment exist. See note 3(h) above.

(i) Accounting for Income Taxes

     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     FairPoint files a consolidated income tax return with its subsidiaries. FairPoint has a tax-sharing agreement in which all subsidiaries are participants. All intercompany tax transactions and accounts have been eliminated in consolidation.

     In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. During non-bankruptcy periods, the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management determines its estimates of future taxable income based upon the scheduled reversal of deferred tax liabilities, projected future taxable income exclusive of reversing temporary differences, and tax planning strategies. The Company establishes valuation allowances for deferred tax assets when it is estimated to be more likely than not that the tax assets will not be realized.

(j) Stock-based Compensation Plans

     The Company accounts for its stock-based compensation plans in accordance with the Compensation-Stock Compensation Topic of the ASC, which establishes accounting for stock-based awards granted in exchange for employee services. Accordingly, for employee awards which are expected to vest, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period, which generally begins on the date the award is granted through the date the award vests.

     On the Effective Date, the Company issued options to purchase shares of New Common Stock to certain employees, a consultant and members of the New Board, pursuant to the terms of the Long Term Incentive Plan. The grant date fair value of the options was determined using the Black-Scholes model. Key assumptions used for determining the fair value of the options were as follows: risk-free rate—2.7%; expected term—7 years; expected volatility—45.0%.

(k) Employee Benefit Plans

     The Company accounts for pensions and other post-retirement benefit plans in accordance with the Compensation — Retirement Benefits Topic of the ASC. This Topic requires the recognition of a defined benefit post-retirement plan’s funded status as either an asset or liability on the balance sheet. This Topic also requires the immediate recognition of the unrecognized actuarial gains and losses and prior service costs and credits that arise during the

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period as a component of other accumulated comprehensive income, net of applicable income taxes. Amounts recognized through accumulated comprehensive income are amortized into current income in accordance with the Compensation — Retirement Benefits Topic of the ASC. Additionally, a company must determine the fair value of plan assets as of the company’s year end.

(l) Business Segments

     Management views its business of providing video, data and voice communication services to residential, wholesale and business customers as one business segment as defined in the Segment Reporting Topic of the ASC. The Company’s services consist of retail and wholesale telecommunications services, including voice, high speed Internet and other services in 18 states. The Company’s chief operating decision maker assesses operating performance and allocates resources based on the consolidated results.

(m) Other Long-Term Liabilities

     As a result of fresh-start reporting, the Company recorded $13.0 million in unfavorable union contracts and $0.7 million in unfavorable leasehold agreements, each of which resulted from agreements with contract rates in excess of market value rates as of the Effective Date. Amortization is recognized on a straight-line basis over the remaining term of the agreements, ranging from 1 to 7 years, as a reduction of employee expense and rent expense within operating expenses.

(4) Recent Accounting Pronouncements

     On January 1, 2011, the Company adopted the accounting standard update (“ASU”) regarding when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. This ASU modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the previously existing guidance, which required that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this ASU are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. The adoption of this ASU did not have a material impact on the Company’s condensed results of operations and financial position.

     In October 2009, the FASB issued an ASU regarding revenue recognition for multiple deliverable arrangements. This method allows a vendor to allocate revenue in an arrangement using its best estimate of selling price if neither vendor specific objective evidence nor third party evidence of selling price exists. Accordingly, the residual method of revenue allocation will no longer be permissible. This ASU must be adopted no later than the beginning of the first fiscal year beginning on or after June 15, 2010. The adoption of this ASU did not have a material impact on the Company’s condensed results of operations and financial position.

(5) Dividends

     The Company currently does not pay a dividend on the New Common Stock and does not expect to reinstate the payment of dividends.

(6) Income Taxes

     The Company recorded an income tax benefit to its Successor Company for the three months ended June 30, 2011 of $22.8 million, an income tax benefit to its Successor Company for the 157 day period ended June 30, 2011 of $38.2 million and an income tax expense to its Predecessor Company for the 24 day period ended January 24, 2011

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of $279.9 million, respectively. The Company recorded an income tax benefit of $10.2 million and $6.7 million for the three and six months ended June 30, 2010, respectively.

     For the three months ended June 30, 2011, the Successor Company’s effective tax benefit rate on $49.9 million of pre-tax loss was 45.7%. The rate differs from the 35% federal statutory rate primarily due to a prior period adjustment. Without the prior period adjustment the effective tax rate would have been 38.9%.

     For the 157 day period ended June 30, 2011, the Successor Company’s effective tax benefit rate on $89.7 million of pre-tax loss was 42.6%. The rate differs from the 35% federal statutory rate primarily due to a prior period adjustment.

     For the 24 day period ended January 24, 2011, the Predecessor Company’s effective tax rate on $866.8 million of pre-tax income was 32.3%. The rate differs from the 35% federal statutory rate primarily due to the release of the valuation allowance and other miscellaneous reorganization adjustments.

     The effective tax rate for the three months ended June 30, 2010 was a 15.9% benefit. The effective tax rate was impacted by non-deductible restructuring charges and post-petition interest, as well as a significant increase in the Company’s valuation allowance for deferred tax assets due to its inability, by rule, to rely on future earnings to offset its NOLs during the Chapter 11 Cases.

     The effective tax rate for the six months ended June 30, 2010 was a 4.6% benefit. The effective tax rate was impacted by a one-time, non-cash income tax charge of $6.8 million during the first quarter of 2010, as a result of the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, both of which became law in March 2010 (collectively, the “Health Care Act”). The effective tax rate for the six months ended June 30, 2010 was also impacted by non-deductible restructuring charges and post-petition interest. In addition, tax benefits from the reported loss during the period were partially offset by an increase in the valuation allowance on the Company’s deferred tax assets.

     At June 30, 2011, the Company had federal and state NOL carryforwards of $199.0 million that will expire from 2019 to 2031. At June 30, 2011, the Company had no alternative minimum tax credits. Legacy FairPoint completed an initial public offering on February 8, 2005, which resulted in an “ownership change” within the meaning of the U.S. Federal income tax laws addressing NOL carryforwards, alternative minimum tax credits, and other similar tax attributes. The Merger and the Company’s emergence from the Chapter 11 Cases also resulted in ownership changes. As a result of these ownership changes, there are specific limitations on the Company’s ability to use its NOL carryfowards and other tax attributes. It is the Company’s belief that it can use the NOLs even with these restrictions in place.

     During the 24 days ended January 24, 2011 the Company excluded from taxable income $1,045.4 million of income from the discharge of indebtedness as defined under Internal Revenue Code (“IRC”) Section 108. There was no income from the discharge of indebtedness for the three months ended June 30, 2011 and the 157 days ended June 30, 2011. IRC Section 108 excludes from taxable income the amount of indebtedness discharged under a Chapter 11 case. IRC Section 108 also requires a reduction of tax attributes equal to the amount of excluded taxable income to be made on the first day of the tax year following the emergence from bankruptcy. We have not finalized our assessment of the tax effects of the bankruptcy emergence and this estimate, as well as the Plan’s effect on all tax attributes, is subject to revision, which could be significant.

     In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management determines its estimates of future taxable income based upon the scheduled reversal of deferred tax liabilities, projected future taxable income exclusive of reversing temporary differences, and tax planning strategies. The Company establishes valuation allowances for deferred tax assets when it is estimated to be more likely than not that the tax assets will not be realized.

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     At June 30, 2011 and December 31, 2010, the Company established a valuation allowance of $29.3 million and $105.6 million, respectively, against its deferred tax assets.

     The Income Taxes Topic of the ASC requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. The unrecognized tax benefits under the Income Taxes Topic of the ASC are similar to the income tax reserves reflected prior to adoption under SFAS No. 5, Accounting for Contingencies, whereby reserves were established for probable loss contingencies that could be reasonably estimated, with the reduction as a result of the termination of the Tax Sharing Agreements with Verizon. The Company’s unrecognized tax benefits totaled $1.0 million as of June 30, 2011 and $5.4 million as of December 31, 2010. Of the $1.0 million of unrecognized tax benefits at June 30, 2011, the entire $1.0 million would impact the Company’s effective rate, if recognized. The unrecognized tax benefits relate to tax reserves recorded in a business combination. Furthermore, the Company does not anticipate any significant increase or decrease to the unrecognized tax benefits within the next twelve months.

     The Company recognizes any interest and penalties accrued related to unrecognized tax benefits in income tax expense. For the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, the Company did not make any payment of interest and penalties. The Company had $1.0 million (after-tax) for the payment of interest and penalties accrued in the condensed consolidated balance sheet at December 31, 2010. There was nothing accrued in the condensed consolidated balance sheet for the payment of interest and penalties at June 30, 2011.

     The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and with various state and local governments. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004.

(7) Interest Rate Swap Agreements

     The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company’s outstanding and forecasted debt obligations. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company’s future cash flows.

     The Company uses variable-rate debt to finance its operations, capital expenditures and acquisitions. The variable-rate debt obligations expose the Company to variability in interest payments due to changes in interest rates. The Company believes it is prudent to limit the variability of a portion of its interest payments. To meet this objective, from time to time, the Company enters into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk.

     As of June 30, 2011, the Company was not party to any interest rate swap agreements since the current variable to fixed swap market rates were substantially below the LIBOR floor contained in the Exit Credit Agreement.

     As of December 31, 2010, the Company was party to interest rate swap agreements under the ISDA Master Agreement with Wachovia Bank, N.A., dated as of December 12, 2000, as amended and restated as of February 1, 2008, and the ISDA Master Agreement with Morgan Stanley Capital Services Inc., dated as of February 1, 2005 (collectively, the “Swaps”) which effectively changed the variable rate on the debt obligations to a fixed rate. Under the terms of the Swaps, the Company was required to make a payment if the variable rate was below the fixed rate, or it received a payment if the variable rate was above the fixed rate. The $98.8 million carrying value of the Swaps represented the termination value of the Swaps as determined by the respective counterparties following the filing of the Chapter 11 Cases. The Swaps were terminated on the Effective Date.

     The Company had determined that the Swaps did not meet the criteria for hedge accounting. Therefore, changes in fair value of the Swaps were recorded as other income (expense) on the condensed consolidated statement of operations. Following the filing of the Chapter 11 Cases, the Swaps retained their termination value and no gain or loss on derivative instruments was recorded to the consolidated statement of operations.

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(8) Long Term Debt

Long term debt for the Company at June 30, 2011 and December 31, 2010 is shown below (in thousands):

	Successor			Predecessor
	Company			Company
	June 30,			December 31,
	2011			2010
Senior secured credit facility, variable rates ranging from 6.75% to 7.00% (weighted average rate of 6.94%) at December 31, 2010, due 2014 to 2015	$	—		$	1,970,963
Senior secured credit facility, variable rate of 6.50% (weighted average rate of 6.50%) at June 30, 2011, due 2016		1,000,000			—
Senior notes, 13.125%, due 2018		—			549,996
Total outstanding long-term debt		1,000,000			2,520,959
Less amounts subject to compromise		—			(2,520,959	)
Total long-term debt, net of amounts subject to compromise	$	1,000,000		$	—
Less current portion		(5,000	)		—
Total long-term debt, net of current portion	$	995,000		$	—

     The estimated fair value of the Company’s long-term debt at June 30, 2011 and December 31, 2010 was approximately $897.5 million and $1,539.7 million, respectively, based on market prices of the Company’s debt securities at the respective balance sheet dates.

     As of June 30, 2011, the Company had $63.0 million, net of $12.0 million outstanding letters of credit, available for additional borrowing under the Exit Revolving Facility.

     As a result of the filing of the Chapter 11 Cases (see note 1), all pre-petition debts owed by the Company under the Pre-Petition Credit Facility and the Pre-Petition Notes were classified as liabilities subject to compromise in the condensed consolidated balance sheet as of December 31, 2010.

     Pursuant to the Plan, the Company did not make any principal or interest payments on its pre-petition debt during the pendency of the Chapter 11 Cases. In accordance with the Reorganizations Topic of the ASC, as interest on the Pre-Petition Notes subsequent to the Petition Date was not expected to be an allowed claim, the Company did not accrue interest expense on the Pre-Petition Notes during the pendency of the Chapter 11 Cases. Accordingly, $4.8 million and $36.1 million, respectively, of interest on unsecured debts, at the stated contractual rates, was not accrued during the 24 days ended January 24, 2011 and the six months ended June 30, 2010. The Company continued to accrue interest expense on the Pre-Petition Credit Facility, as such interest was considered an allowed claim per the Plan.

     All pre-petition debt was terminated on the Effective Date.

          The approximate aggregate maturities of long-term debt for each of the five years subsequent to June 30, 2011 are as follows (in thousands):

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Quarter ending June 30 (Successor
Company),
2012	$	5,000
2013		10,000
2014		17,500
2015		37,500
2016		930,000
	$	1,000,000

     Exit Credit Agreement

     On the Effective Date, the Exit Borrowers entered into the Exit Credit Agreement Loans. On the Effective Date, the Company paid to the lenders providing the Exit Revolving Facility an aggregate fee equal to $1.5 million. Interest on the Exit Credit Agreement Loans accrues at an annual rate equal to either (a) LIBOR plus 4.50%, with a minimum LIBOR floor of 2.00% for the Exit Term Loan, or (b) a base rate plus 3.50% per annum in which base rate is equal to the highest of (x) Bank of America’s prime rate, (y) the federal funds effective rate plus 0.50% and (z) applicable LIBOR (with minimum LIBOR floor of 2.00%) plus 1.00%. In addition, the Company is required to pay a 0.75% per annum commitment fee on the average daily unused portion of the Exit Revolving Facility. The entire outstanding principal amount of the Exit Credit Agreement Loans is due on the Exit Maturity Date; provided that on the third anniversary of the Effective Date, the Company must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a continuation fee of $0.75 million and, on the fourth anniversary of the Effective Date, the Company must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a second continuation fee of $0.75 million. The Exit Credit Agreement requires quarterly repayments of principal of the Exit Term Loan after the first anniversary of the Effective Date. In the second and third years following the Effective Date, such quarterly payments shall each be in an amount equal to $2.5 million; during the fourth year following the Effective Date, such quarterly payments shall each be in an amount equal to $6.25 million; and for the first three quarters during the fifth year following the Effective Date, such quarterly payments shall each be in an amount equal to $12.5 million, with all remaining outstanding amounts owed in respect of the Exit Term Loan being due and payable on the Exit Maturity Date.

     The Exit Credit Agreement Loans are guaranteed by all of the Exit Financing Loan Parties. The Exit Credit Agreement Loans as a whole are secured by liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties, with first lien and payment waterfall priority for the Exit Revolving Facility and second lien priority for the Exit Term Loan.

     The Exit Credit Agreement contains customary representations, warranties and affirmative covenants. In addition, the Exit Credit Agreement contains restrictive covenants that limit, among other things, the ability of the Company to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock. The Exit Credit Agreement also contains minimum interest coverage and maximum total leverage maintenance covenants, along with a maximum senior leverage covenant measured upon the incurrence of certain types of debt. The Exit Credit Agreement contains certain events of default, including failure to make payments, breaches of covenants and representations, cross defaults to other material indebtedness, unpaid and uninsured judgments, changes of control and bankruptcy events of default. The lenders’ commitments to fund amounts under the Exit Revolving Facility are subject to certain customary conditions. As of June 30, 2011, the Exit Borrowers were in compliance with all covenants under the Exit Credit Agreement.

     Letters of credit outstanding under the DIP Credit Agreement on the Effective Date were rolled into the Exit Revolving Facility.

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     Debtor-in-Possession Financing

     In connection with the Chapter 11 Cases, the DIP Borrowers entered into the DIP Credit Agreement with the DIP Lenders and the DIP Administrative Agent. The DIP Credit Agreement provided a revolving facility in an aggregate principal amount of up to $75.0 million, of which up to $30.0 million was also available in the form of one or more letters of credit that could be issued to third parties for the DIP Borrowers’ account ( the “DIP Financing”). Pursuant to the Order of the Bankruptcy Court, dated October 28, 2009 (the “Interim Order”), the DIP Borrowers were authorized to enter into and immediately draw upon the DIP Credit Agreement on an interim basis, pending a final hearing before the Bankruptcy Court, in an aggregate amount of $20.0 million. On March 11, 2010 the Bankruptcy Court issued the Final DIP Order, permitting the DIP Borrowers access to the total $75.0 million of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders of the Bankruptcy Court, of which up to $30.0 million was also available in the form of one or more letters of credit that could be issued to third parties for the DIP Borrowers’ account.

     Other material provisions of the DIP Credit Agreement included the following:

     Interest rates for borrowings under the DIP Credit Agreement were, at the DIP Borrowers’ option, at either (i) the Eurodollar rate plus a margin of 4.5% or (ii) the base rate plus a margin of 3.5%, payable monthly in arrears on the last business day of each month.

     The DIP Credit Agreement provided for the payment to the DIP Administrative Agent, for the pro rata benefit of the DIP Lenders, of an upfront fee in the aggregate principal amount of $1.5 million, which upfront fee was payable in two installments: (1) the first installment of $0.4 million was due and payable on October 28, 2009, the date on which the Interim Order was entered by the Bankruptcy Court, and (2) the remainder of the upfront fee was due and payable on the date the Final DIP Order was entered by the Bankruptcy Court. The DIP Credit Agreement also provided for an unused line fee of 0.50% on the unused revolving commitment, payable monthly in arrears on the last business day of each month (or on the date of maturity, whether by acceleration or otherwise), and a letter of credit facing fee of 0.25% per annum calculated daily on the stated amount of all outstanding letters of credit.

     As of December 31, 2010, the Company had not borrowed any amounts under the DIP Credit Agreement; however, letters of credit had been issued under the DIP Credit Agreement for $18.7 million. Accordingly, as of December 31, 2010, the amount available under the DIP Credit Agreement was $56.3 million.

     The DIP Credit Agreement was terminated on the Effective Date. All letters of credit outstanding under the DIP Credit Agreement were transferred to the Exit Credit Agreement on the Effective Date.

(9) Employee Benefit Plans

     The Company remeasured its pension and other post-employment benefit assets and liabilities as of December 31, 2010, in accordance with the Compensation—Retirement Benefits Topic of the ASC. This measurement was based on a weighted average discount rate of 5.61%, as well as certain other valuation assumption modifications. In conjunction with fresh start accounting, the Company remeasured its pension and other post-employment benefit assets and liabilities at the Effective Date. See note 2.

     Components of the net periodic benefit cost related to the Company’s pension and post-retirement healthcare plans for the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010 are presented below (in thousands).

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		Successor Company
								One Hundred Fifty-Seven Days
		Three Months Ended						Ended
		June 30, 2011						June 30, 2011
					Post-						Post-
		Qualified			retirement			Qualified			retirement
		Pension			Health			Pension			Health
Service cost	$		3,177	$		4,310	$		5,295	$		7,183
Interest cost			3,655			4,813			6,092			8,022
Expected return on plan assets			(3,634)			(3)			(6,056)			(5)
Net periodic benefit cost	$		3,198	$		9,120	$		5,331	$		15,200

		Predecessor Company
		Twenty-Four Days Ended
		January 24, 2011
					Post-
		Qualified			retirement
		Pension			Health
Service cost	$		849	$		1,167
Interest cost			934			1,252
Expected return on plan assets			(1,089)			(1)
Amortization of prior service cost			98			276
Amortization of actuarial (gain) loss			283			368
Net periodic benefit cost	$		1,075	$		3,062

		Predecessor Company
		Three Months Ended						Six Months Ended
		June 30, 2010						June 30, 2010
		(Restated)						(Restated)
					Post-						Post-
		Qualified			retirement			Qualified			retirement
		Pension			Health			Pension			Health
Service cost	$		2,881	$		3,453	$		5,762	$		6,906
Interest cost			3,011			3,980			6,023			7,961
Expected return on plan assets			(4,148)			—			(8,296)			—
Amortization of prior service cost			381			1,072			762			2,145
Amortization of actuarial (gain) loss			279			778			558			1,555
Net periodic benefit cost	$		2,404	$		9,283	$		4,809	$		18,567

     The Company expects to contribute approximately $6.8 million to its qualified pension plans during fiscal year 2011. The Company’s pension plan funding requirements are based on the Pension Protection Act of 2006 and subsequent funding relief passed by Congress and regulations published by the IRS.

     The Company expects to contribute approximately $2.3 million to its post-retirement healthcare plans in 2011 for benefit payments to current retirees.

     For the three and six months ended June 30, 2011, the actual gain on the pension plan assets was approximately 1.8% and 5.0%, respectively. Net periodic benefit cost for 2011 assumes a weighted average annualized expected

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return on plan assets of approximately 8.3%. Should the Company’s actual return on plan assets become significantly lower than the expected return assumption, the net periodic benefit cost may increase in future periods and the Company may be required to contribute additional funds to its pension plans.

     During the three months ended March 31, 2010, $33.3 million was transferred from Verizon’s defined benefit pension plans’ trusts to the Company’s pension plan trust. As of December 31, 2009, a disputed amount was pending final validation by a third-party actuary of the census information and related actuarial calculations in accordance with relevant statutory and regulatory guidelines and the Employee Matters Agreement, dated January 15, 2007 between Verizon and the Company (the “Employee Matters Agreement”). The disputed amount was not included in the Company’s pension plan assets at December 31, 2009. By letter dated July 29, 2010, the third-party actuary appointed to perform the review and validation determined that an additional $2.5 million, adjusted for gains or losses since the date of the original transfer, should be transferred from Verizon’s defined benefit plans’ trusts to the Company’s represented employees pension plan trust. This transfer was received in the amount of $2.4 million on September 1, 2010, at which time the Company’s net pension obligation was decreased by this amount.

     The Company and its subsidiaries sponsor four voluntary 401(k) savings plans that, in the aggregate, cover all eligible Legacy FairPoint employees, and two voluntary 401(k) savings plans that, in the aggregate, cover all eligible Northern New England operations employees (collectively, “the 401(k) Plans”). Each 401(k) Plan year, the Company contributes to the 401(k) Plans an amount of matching contributions determined by the Company at its discretion for management employees and based on the collective bargaining agreements for all other employees. For the six months ended June 30, 2011 and for the 401(k) Plan year ended December 31, 2010, the Company generally matched 100% of each employee’s contribution up to 5% of compensation. Total Company contributions to all 401(k) Plans were $2.5 million, $4.8 million, $0.7 million, $2.6 million and $5.0 million for the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, respectively.

(10) Earnings Per Share

     Earnings per share has been computed in accordance with the Earnings Per Share Topic of the ASC. On the Effective Date, the Company adopted the Long Term Incentive Plan and entered into the Warrant Agreement. Awards pursuant to these agreements were evaluated for qualification as participating securities for inclusion in the calculation of basic earnings per share under the two-class method. It was determined that restricted shares of common stock under the Long Term Incentive Plan do qualify as participating securities although holders of these awards do not have a contractual obligation to share in losses of the Company. Accordingly, in a loss position, basic earnings per share of the Company is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. In an income position, basic earnings per share of the Company is computed by dividing net income by the weighted average number of shares of common stock outstanding and participating securities for the period. Except when the effect would be anti-dilutive, the diluted earnings per share calculation calculated using the treasury stock method includes the impact of stock units, shares of non-vested common stock and shares that could be issued under outstanding stock options.

     The following table provides a reconciliation of the common shares used for basic earnings per share and diluted earnings per share (in thousands):

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	Successor		Predecessor		Successor
	Company		Company		Company		Predecessor Company
					One
					Hundred
	Three Months		Three		Fifty-Seven		Twenty-Four Days		Six Months
	Ended		Months		Days Ended		Ended		Ended
	June 30, 2011		June 30, 2010		June 30, 2011		January 24, 2011		June 30, 2010
			(Restated)						(Restated)
Weighted average number of common shares used for basic earnings per share		25,652		89,424		25,644		89,424		89,424
Effect of potential dilutive shares		—		—		—		271		—
Weighted average number of common shares and potential dilutive shares used for diluted earnings per share		25,652		89,424		25,644		89,695		89,424
Anti-dilutive shares excluded from the above reconciliation		5,006		2,535		5,006		712		2,535

     Weighted average number of common shares used for basic earnings per share excludes 543,641, 545,386, 16,666, 565,476 and 565,476 shares of restricted non-vested stock as of the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June, 30, 2010, respectively. Since the Company incurred a loss for the three months ended June 30, 2011, the 157 days ended June 30, 2011 and the three and six months ended June 30, 2010, all potentially dilutive securities are anti-dilutive for these periods and are, therefore, excluded from the determination of diluted earnings per share.

(11) Stockholders’ Equity (Deficit)

     On the Effective Date, the Company issued 25,659,877 shares of Common Stock and 3,458,390 Warrants to purchase Common Stock and reserved 610,309 shares and 124,012 Warrants for satisfaction of certain pending claims related to the Chapter 11 Cases. During the three months ended June 30, 2011 the Company issued 2,183 shares and 3,723 Warrants from this reserve. During the six months ended June 30, 2011 the Company issued 539,738 shares and 3,723 Warrants from this reserve. At June 30, 2011, 37,500,000 shares of Common Stock were authorized, 26,195,265 shares of Common Stock were outstanding, and 70,571 shares and 120,289 Warrants remained reserved for satisfaction of pending claims related to the Chapter 11 Cases.

(12) Fair Value Measurements

     The Fair Value Measurements and Disclosures Topic of the ASC (formerly SFAS 157, Fair Value Measurements) defines fair value, establishes a framework for measuring fair value and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. The Fair Value Measurements and Disclosures Topic of the ASC also expands financial statement disclosures about fair value measurements.

     The carrying value of the Swaps at December 31, 2010 represents the termination value of the Swaps as determined by the respective counterparties following the termination event described herein. See note 7 for more information.

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     At the Effective Date, all assets and liabilities were remeasured at fair value under fresh start accounting. See note 2.

(13) Commitments and Contingencies

(a) Leases

     The Company does not have any leases with contingent rental payments or any leases with contingency renewal, purchase options, or escalation clauses.

(b) Legal Proceedings

     From time to time, the Company is involved in litigation and regulatory proceedings arising out of its operations. With the exception of the Chapter 11 Cases, 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.

     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. 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 fiscal 2008 and 2009 SQI penalties, as applicable, until December 31, 2010 and included a clause whereby such penalties would be forgiven in part or in whole if the Company met certain metrics for the twelve-month period ending December 31, 2010. As a result of improvements on certain SQI metrics, the Company expects to receive waivers of 60% in New Hampshire and 80% in Vermont under this clause, and, accordingly, reduced its accrual by $12.7 million in the three months ended December 31, 2010. However, the Company’s SQI metrics in the state of New Hampshire are currently subject to an audit ordered by the NHPUC. Therefore, the amount of the waiver in New Hampshire is subject to change depending on the results of the audit. In addition, the Regulatory Settlement for Maine deferred the Company’s fiscal 2008 and 2009 SQI penalties until March 2010.

     As of June 30, 2011 and December 31, 2010, the Company has recognized an estimated liability for service quality penalties based on metrics defined by the state regulatory authorities in Maine, New Hampshire and Vermont. Based on the Company’s current estimate of its service quality penalties in these states, a decrease of $2.5 million in the estimated liability was recorded as an increase to revenue for the three months ended June 30, 2011 and the 157 days ended June 30, 2011 due to an improvement in the Company’s service performance, revisions to accruals and recent changes in Maine regulation which eliminated the multiplier rebate penalties beginning in fiscal 2011. An

41

increase of $0.4 million, $2.0 million and $6.3 million in the estimated liability was recorded as a reduction to revenue for the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, respectively. Beginning in March 2010, the Company began to issue SQI rebates related to the Maine 2008 and 2009 SQI penalties to customers over a twelve month period. During the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, the Company paid out $2.4 million, $4.2 million, $0.6 million, $1.7 million and $2.1 million, respectively, of SQI penalties in the form of customer rebates, all of which were related to Maine fiscal 2008 and 2009 penalties. The Company has recorded a total liability of $13.8 million and $20.8 million on the consolidated balance sheets at June 30, 2011 and December 31, 2010, respectively, of which $9.1 million and $12.5 million, respectively, are included in other accrued liabilities. The remainder of the June 30, 2011 and December 31, 2010 liability is included in claims payable and estimated claims accrual and liabilities subject to compromise, respectively.

(d) Performance Assurance Plan Credits

     As part of the Merger Orders, the Company adopted a PAP for certain services provided on a wholesale basis to CLECs in the states of Maine, New Hampshire and Vermont. Failure to meet specified performance standards in any of these states may result in performance credits being assessed in accordance with the provisions of the PAP in each state. As of June 30, 2011 and 2010, the Company has recorded a reserve for the estimated amount of PAP credits based on metrics defined by the PAP. Credits assessed in Maine and New Hampshire are recorded as a reduction to accounts receivable since they are paid by the Company in the form of credits applied to CLEC bills. PAP credits for Vermont are recorded as liabilities since a majority of these credits are paid to the Vermont Universal Service Fund, while the remaining credits assessed in Vermont are paid by the Company in the form of credits applied to CLEC bills. Based on the Company’s current estimate of its PAP credits in these states, a decrease of $0.9 million, a decrease of $0.1 million, an increase of $0.6 million, an increase of $1.3 million and an increase of $3.9 million in the estimated reserve was recorded as an increase/reduction to revenue for the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, respectively. During the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, the Company paid out $0.8 million, $2.9 million, $0.5 million, $2.3 million and $4.1 million, respectively, of PAP credits. The Company has recorded a total reserve of $5.5 million and $8.4 million on the consolidated balance sheets at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011 and December 31, 2010, $4.1 million of the total reserve is recorded to the Claims Reserve and Liabilities Subject to Compromise, respectively.

     The NHPUC has ordered an audit of the Company’s existing PAP in the state of New Hampshire, which has not yet commenced. The existing PAP in Maine and Vermont may also be subject to audit, as determined by the Maine Public Utilities Commission and the Vermont Public Service Board, respectively.

(e) Capital Expenditure Obligations

     Under regulatory settlements in each of Maine, New Hampshire and Vermont, the Company is required to make certain capital expenditures in each of these states. Beginning from the date of the Merger, the Company is required to spend $141.0 million through March 31, 2011 in Maine, $350.4 million through March 31, 2015 in New Hampshire and $120.0 million through March 31, 2011 in Vermont. The Company has exceeded the expenditure requirements with a deadline of March 31, 2011 in Maine and Vermont and expects to meet the expenditure requirements with a deadline of March 31, 2015 in New Hampshire.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Quarterly Report. The following discussion includes certain forward-looking statements. For a discussion of important factors, which could cause actual results to differ materially from the results referred to in the forward-looking statements, see “Part I — Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010 and “Part II — Item 1A. Risk Factors” and “Cautionary Note Concerning Forward-Looking Statements” contained in this Quarterly Report. Our discussion and analysis of financial condition and results of operations are presented in twelve sections:

• Overview

• Fresh Start Accounting

• Restatement

• Basis of Presentation

• Revenues

• Operating Expenses

• Results of Operations

• Off-Balance Sheet Arrangements

• Critical Accounting Policies

• New Accounting Standards

• Inflation

• Liquidity and Capital Resources

Overview

     We are a leading provider of communications services in rural and small urban communities, offering an array of services, including HSD, Internet access, voice, television and broadband product offerings. We operate in 18 states with approximately 1.4 million access line equivalents (including voice access lines and HSD lines, which include DSL, wireless broadband, cable modem and fiber-to-the-premises) in service as of June 30, 2011.

     We were incorporated in Delaware in February 1991 for the purpose of acquiring and operating incumbent telephone companies in rural and small urban markets. Many of our telephone companies have served their respective communities for over 75 years.

     As our primary source of revenues, access lines are an important element of our business. Over the past several years, communications companies, including FairPoint, have experienced a decline in access lines due to increased competition, including competition from CLECs, wireless carriers and cable television operators, increased availability of broadband services and challenging economic conditions. In addition, while we were operating under a transition services agreement with Verizon related to the Merger, we had limited ability to change current product offerings. While voice access lines are expected to continue to decline, we expect to offset a portion of this lost revenue with growth in HSD revenue as we continue to build out our network to provide HSD products to customers who did not previously have access to such products and to offer more competitive services to existing customers. In addition, due to issues with transitioning certain back-office functions from Verizon’s integrated systems to our newly created systems and the Chapter 11 Cases, we lost significant market share in recent years. Our strategy is to leverage our ubiquitous network in our Northern New England operations to regain market share, particularly in the business and wholesale markets and for data services.

     We continue to expand our VantagePoint^SM network to support more high-speed data services and extend fiber into more communities across Maine, New Hampshire and Vermont. This fiber-optic build supplies critical infrastructure known as “backhaul” for wireless traffic in the region, and will address the increasing bandwidth needs being driven by new applications for smart phones, tablets and other wireless devices. Today we support 3G service on more than 1,600

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towers in our Northern New England footprint. In the transformation to 4G service, we will have the capacity to provide Ethernet-over-fiber service to more than half of the towers with this initial network expansion.

     We are subject to regulation primarily by federal and state governmental agencies. At the federal level, the FCC generally exercises jurisdiction over the facilities and services of communications common carriers, such as FairPoint, to the extent those facilities are used to provide, originate or terminate interstate or international communications. State regulatory commissions generally exercise jurisdiction over common carriers’ facilities and services to the extent those facilities are used to provide, originate or terminate intrastate communications. In addition, pursuant to the Telecommunications Act of 1996, which amended the Communications Act of 1934, state and federal regulators share responsibility for implementing and enforcing the domestic pro-competitive policies introduced by that legislation.

     Legacy FairPoint’s operations and our Northern New England operations operate under different regulatory regimes in certain respects. For example, concerning interstate access, all of the pre-Merger regulated interstate services of FairPoint were regulated under a rate-of-return model, while all of the rate-regulated interstate services provided by the Verizon Northern New England business were regulated under a price cap model. On May 10, 2010, we received FCC approval to convert our Legacy FairPoint operations in Maine and Vermont to the price cap model. Our Legacy FairPoint operations in Maine and Vermont converted to price cap regulation on July 1, 2010. We have obtained permission to continue to operate our Legacy FairPoint ILECs outside of Maine and Vermont under the rate-of-return regime until the FCC completes its general review of whether to modify or eliminate the “all-or-nothing” rule. Without this permission, the all-or-nothing rule would require that all of our regulated operations be operated under the price cap model for federal regulatory purposes. In addition, while all of our operations generally are subject to obligations that apply to all LECs, our non-rural operations are subject to additional requirements concerning interconnection, non-discriminatory network access for competitive communications providers and other matters, subject to substantial oversight by state regulatory commissions. In addition, the FCC has ruled that our Northern New England operations must comply with the regulations applicable to the Bell Operating Companies. Our rural and non-rural operations are also subject to different regimes concerning universal service.

     In July 2011, we joined with five other major communications companies in submitting a proposal to the FCC to speed broadband deployment to more than four million Americans living in rural areas. In addition, the National Telecommunications Cooperative Association, the Organization for the Promotion and Advancement of Small Telecommunications Companies and Western Telecommunications Alliance put forth a proposal to the FCC which establishes a framework for reform. The two proposals, called America’s Broadband Connectivity Plan, share key goals of modernizing the federal Universal Service Fund (“USF”) so that it is focused on building and sustaining broadband networks without increasing the size of the fund and fundamentally reforming the Intercarrier Compensation (“ICC”) system that governs how communications companies bill one another for handling traffic, gradually phasing down these charges. Together, the proposals will benefit consumers and promote the goals of the National Broadband Plan, which called for overhauling these two complex systems to address the modern-day mission of supporting broadband deployment as cost-efficiently as possible.

Fresh Start Accounting

     On October 26, 2009, we filed the Chapter 11 Cases. On January 13, 2011, the Bankruptcy Court entered the Confirmation Order, which confirmed the Plan.

     On January 24, 2011, the Effective Date, we substantially consummated our reorganization through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to its terms.

     Upon our emergence from Chapter 11 on January 24, 2011, we adopted fresh start accounting in accordance with guidance under the applicable reorganization accounting rules, pursuant to which our reorganization value, which represents the fair value of an entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the entity immediately after the reorganization, has been allocated to the fair value of assets in conformity with guidance under the applicable accounting rules for business combinations, using the purchase method of accounting for business combinations. The amount remaining after allocation of the reorganization value to the fair value of

44

identified tangible and intangible assets has been reflected as goodwill, which is subject to periodic evaluation for impairment. In addition to fresh start accounting, our future consolidated financial statements will reflect all effects of the transactions contemplated by the Plan; therefore our future statements of financial position and statements of operations will not be comparable in many respects to our consolidated statements of financial position and consolidated statements of operations for periods prior to our adoption of fresh start accounting and prior to accounting for the effects of the reorganization, including certain of the financial statements contained herein.

Restatement

     In our 2010 Annual Report on Form 10-K, we restated our March 31, 2010, June 20, 2010 and September 30, 2010 quarterly interim consolidated financial statements.

     The June 30, 2010 Quarterly Report, which was impacted by the Restatement, was not amended. Accordingly, we caution you that certain information contained in the June 30, 2010 Quarterly Report should no longer be relied upon, including our previously issued and filed June 30, 2010 interim consolidated financial statements and any financial information derived therefrom (including, without limitation, information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in the June 30, 2010 Quarterly Report). In addition, we caution you that other communications or filings related to the June 30, 2010 interim consolidated financial statements which were filed or otherwise released prior to the filing by us of the 2010 Annual Report with the SEC should no longer be relied upon. All financial information in this Quarterly Report for the three and six months ended June 30, 2010 affected by the Restatement adjustments reflect such financial information as restated, including, without limitation, the amounts contained in “— Results of Operations”.

     The restated June 30, 2010 interim consolidated financial statements were corrected for the following errors:

     Project Abandonment Adjustment

     Certain capital projects, principally a wireless broadband fixed asset project, had been abandoned but the write-off of all of the related capitalized costs had not occurred in a timely manner.

     Costs Capitalized to Property, Plant and Equipment Adjustment

     Due to a backlog of capital projects not yet closed, certain costs (principally labor expenses) remained capitalized to property, plant and equipment rather than expensed.

     Application of Overhead Costs Adjustment

     An error was discovered in the application of overhead costs to capital projects.

     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 the restatement of the June 30, 2010 interim consolidated financial statements, we 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 aggregate impact of these adjustments resulted in an increase to our previously reported pre-tax loss for the three and six month period ended June 30, 2010 of approximately $17.6 million and $28.3 million, respectively, which is mainly attributable to a reduction to reported revenues of approximately $2.4 million and $6.0 million, respectively, an

45

increase to our previously reported operating expenses of approximately $18.3 million and $25.5 million, respectively, offset by a decrease in other expense of $3.2 million and $3.2 million, respectively. The aggregate impact of the adjustments for the three and six months ended June 30, 2010 resulted in an increase in net loss of approximately $17.6 million and $28.3 million, net of taxes, respectively, and a decrease in our reported capital expenditures of approximately $6.7 million and $11.4 million, respectively.

Basis of Presentation

     We view our business of providing data, voice and communication services to residential, wholesale and business customers as one business segment as defined in the Segment Reporting Topic of the ASC.

     Upon our emergence from Chapter 11 on January 24, 2011, we adopted fresh start accounting in accordance with guidance under the applicable reorganization accounting rules. While the adoption of fresh start accounting presents the results of operations of a new reporting entity, we believe the comparison of the three and six months ended June 30, 2011 versus the three and six months ended June 30, 2010 provides the best analysis of the results of operations. The only income statement items impacted by the reorganization are depreciation, interest expense and reorganization items. Those effects of fresh start accounting are discussed in more detail in the respective sections below.

Revenues

     We derive our revenues from:

• Voice services. We receive revenues from our telephone operations from the provision of local exchange, long-distance, local private line, voice messaging and value-added services. Included in long-distance services revenue are revenues received from regional toll calls. Value-added services are a family of services that expand the utilization of the network, including products such as caller ID, call waiting and call return. The provision of local exchange services not only includes retail revenues but also includes local wholesale revenues from unbundled network elements, interconnection revenues from CLECs and wireless carriers, and some data transport revenues. Voice services revenues also include Universal Fund payments for high-cost support, local switching support, long-term support and Interstate Common Line Support.

• Access. We receive revenues for the provision of network access, including interstate access and intrastate access.

Network access revenues are earned from end-user customers and long-distance and other competing carriers who use our local exchange facilities to provide usage services to their customers. Switched access revenues are derived from fixed and usage-based charges paid by carriers for access to our local network. Special access revenues originate from carriers and end-users that buy dedicated local and interexchange capacity to support their private networks, including wireless carriers to backhaul voice and data traffic from cell towers to mobile telephone switching offices.

Interstate access revenues are earned on charges to long-distance carriers and other customers for access to our networks in connection with the origination and termination of interstate telephone calls both to and from our customers. Interstate access charges to long-distance carriers and other customers are based on access rates filed with the FCC.

Intrastate access revenues consist primarily of charges paid by long-distance companies and other customers for access to our networks in connection with the origination and termination of intrastate telephone calls both to and from our customers. Intrastate access charges to long-distance carriers and other customers are based on access rates filed with the state regulatory agencies.

• Data and Internet services. We receive revenues from monthly recurring charges for services, including HSD, Internet and other services.

• Other services. We receive revenues from other services, including video services (including cable television and

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video-over-DSL), billing and collection, directory services, public (coin) telephone and the sale and maintenance of customer premise equipment.

     The following table summarizes revenues and the percentage of revenues from these sources (in thousands, except for percentage of revenues data):

	Successor Company					Predecessor Company
	Three Months Ended					Three Months Ended
	June 30, 2011					June 30, 2010
			% of					% of
	$		Revenue			$		Revenue
						(Restated)
Revenue Source:
Voice services	$	127,085		48	%	$	134,943		50	%
Access		93,128		36	%		96,182		35	%
Data and Internet services		29,849		11	%		28,961		11	%
Other services		12,574		5	%		11,477		4	%
Total	$	262,636		100	%	$	271,563		100	%

																Predecessor
	Successor Company					Predecessor Company					Combined					Company
	One Hundred Fifty-					Twenty-Four Days
	Seven Days Ended					Ended					Six Months Ended					Six Months Ended
	June 30, 2011					January 24, 2011					June 30, 2011					June 30, 2010
			% of					% of					% of					% of
	$		Revenue			$		Revenue			$		Revenue			$		Revenue
																(Restated)
Revenue Source:
Voice services	$	218,333		48	%	$	32,977		50	%	$	251,310		49	%	$	269,361		50	%
Access		161,463		36	%		23,023		35	%		184,486		36	%		193,038		36	%
Data and Internet services		50,807		11	%		7,537		11	%		58,344		11	%		56,028		10	%
Other services		20,435		5	%		2,841		4	%		23,276		4	%		23,937		4	%
Total	$	451,038		100	%	$	66,378		100	%	$	517,416		100	%	$	542,364		100	%

          The following table summarizes access line equivalents (including voice access lines and HSD lines, which include DSL, wireless broadband, cable modem and fiber-to-the-premises) as of June 30, 2011 and 2010:

	Successor		Predecessor
	Company		Company
	June 30,		June 30,
	2011		2010
Access Line Equivalents:
Residential access lines		680,189		758,005
Business access lines		317,584		340,988
Wholesale access lines		82,231		91,138
Total switched access lines		1,080,004		1,190,131
High speed data subscribers		305,155		289,609
Total access line equivalents		1,385,159		1,479,740

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Operating Expenses

          Our operating expenses consist of cost of services and sales, selling, general and administrative expenses and depreciation and amortization.

• Cost of Services and Sales. Cost of services and sales includes the following costs directly attributable to a service or product: salaries and wages, benefits, materials and supplies, contracted services, network access and transport costs, customer provisioning costs, computer systems support and cost of products sold. Aggregate customer care costs, which include billing and service provisioning, are allocated between cost of services and sales and selling, general and administrative expense.

• Selling, General and Administrative Expense. Selling, general and administrative expense includes salaries and wages and benefits not directly attributable to a service or product, bad debt charges, taxes other than income, advertising and sales commission costs, customer billing, call center and information technology costs, professional service fees and rent for administrative space. Also included in selling, general and administrative expenses are non-cash expenses related to stock based compensation. Stock based compensation consists of compensation charges incurred in connection with the employee stock options, stock units and non-vested restricted stock granted to executive officers, other employees and directors.

• Depreciation and amortization. Depreciation and amortization includes depreciation of our communications network and equipment and amortization of intangible assets.

Results of Operations

Three Months Ended June 30, 2011 Compared with Three Months Ended June 30, 2010

          The following table sets forth the percentages of revenues represented by selected items reflected in our consolidated statements of operations. The year-to-year comparisons of financial results are not necessarily indicative of future results (in thousands, except percentage of revenues data):

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	Successor Company						Predecessor Company
	Three Months Ended						Three Months Ended
	June 30, 2011						June 30, 2010
				% of						% of
	$			Revenue			$			Revenue
							(Restated)
Revenues	$	262,636			100	%	$	271,563			100	%
Operating expenses:
Costs of services and sales		114,468			43			133,211			49
Selling, general and administrative		88,316			34			97,062			36
Depreciation and amortization		90,614			35			71,472			26
Reorganization related expense		2,510			1			—			—
Total operating Expenses		295,908			113			301,745			111
Loss from operations		(33,272	)		(13	)		(30,182	)		(11	)
Interest expense		(16,996	)		(6	)		(35,721	)		(13	)
Other income (expense)		350			—			105			—
Loss before reorganization items and income taxes		(49,918	)		(19	)		(65,798	)		(24	)
Reorganization items		—			—			1,375			—
Loss before income taxes		(49,918	)		(19	)		(64,423	)		(24	)
Income tax benefit		22,821			9			10,245			4
Net loss	$	(27,097	)		(10	)%	$	(54,178	)		(20	)%

     Revenues decreased $8.9 million to $262.6 million in the second quarter of 2011 compared to the same period in 2010. We derive our revenues from the following sources:

     Voice services. Voice services revenues decreased $7.9 million to $127.1 million during the second quarter of 2011 compared to the same period in 2010, of which $6.5 million is attributable to a decrease in local calling services revenues and $1.4 million is due to a decrease in long distance services revenue. This decrease in voice services revenues is primarily due to the impact of a 9.3% decline in total switched access lines in service at June 30, 2011 compared to June 30, 2010, largely offset by a $4.5 million decline in SQI penalties and a $1.9 million decrease in PAP credits recorded during the second quarter of 2011 as compared to the second quarter of 2010. The decrease in the number of voice access lines is attributable to an increase in technology substitution and our competitors.

     Access. Access revenues decreased $3.1 million to $93.1 million during the second quarter of 2011 compared to the same period in 2010. Growth in special access revenue is being offset by declines in switched access and end user revenues as minutes of use decline. Special access revenue increased $1.3 million (2.8%) for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010 primarily due to revenue assurance activities, including back-billing. Switched access revenues decreased $2.8 million (11.7%) and end user revenues decreased $1.6 million (6.6%) primarily due to a 9.3% decline in total switched access lines in service at June 30, 2011 compared to June 30, 2010.

     Data and Internet services. Data and Internet services revenues increased $0.9 million to $29.8 million in the second quarter of 2011 compared to the same period in 2010. The increase was primarily attributable to a 5.4% increase in the number of HSD subscribers from June 30, 2010 to June 30, 2011 resulting from our bundling and other marketing efforts.

     Other services. Other services revenues increased $1.1 million to $12.6 million in the second quarter of 2011 compared to the same period in 2010.

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Operating Expenses

     Cost of services and sales. Cost of services and sales decreased $18.7 million to $114.5 million in the second quarter of 2011 compared to the same period in 2010. This decrease is mainly attributable to $12.3 million recognized in the three months ended June 30, 2010 for the abandonment of certain capital projects and a reduction in access expenses associated with providing long distance and data and Internet services. In conjunction with fresh start accounting, on the Effective Date, the Company wrote off $4.8 million of deferred charges associated with customer activation fees of the predecessor company and recorded a $13.0 million liability for unfavorable union contracts. Accordingly, deferred charges related to customer activation fees decreased $2.3 million as compared to the three months ended June 30, 2010 and a $0.9 million reduction of employee expense was recorded for the amortization of unfavorable union contracts.

     Selling, general and administrative. Selling, general and administrative expenses decreased $8.7 million to $88.3 million in the second quarter of 2011 compared to the same period in 2010. The decrease is primarily attributable to a reduction in marketing expenses and contracted services, including professional fees incurred during the three months ended June 30, 2010 which were elevated in 2010. Bad debt expense for the three months ended June 30, 2011 remained relatively consistent with the second quarter of 2010.

     Depreciation and amortization. Depreciation and amortization expense increased $19.1 million to $90.6 million in the second quarter of 2011 compared to the same period in 2010. This is primarily attributable to the adoption of fresh start accounting upon the Effective Date whereby the carrying value of the long-lived assets of the Company were adjusted to fair value and the useful lives were adjusted.

     Reorganization related expense. Reorganization related expense represents expense or income amounts that have been recognized as a direct result of the Chapter 11 Cases, occurring after the Effective Date. During the three months ended June 30, 2011, reorganization related expense is comprised of $2.5 million of restructuring professional fees primarily related to fresh start accounting and continuing work to settle outstanding claims.

Other Results

     Interest expense. Interest expense decreased $18.7 million to $17.0 million in the second quarter of 2011 compared to the same period in 2010 due primarily to a significant decrease in our outstanding debt. Upon the filing of the Chapter 11 Cases, in accordance with the Reorganizations Topic of the ASC, we ceased the accrual of interest expense on the Notes and the Swaps as it was unlikely that such interest expense would be paid or would become an allowed priority secured or unsecured claim. We continued to accrue interest expense on the Pre-Petition Credit Facility, as such interest was considered an allowed claim pursuant to the Plan. Upon the Effective Date, we entered into the Exit Credit Agreement and began accruing interest on the Exit Credit Agreement Loans.

     Other income (expense). Other income (expense) includes non-operating gains and losses such as those incurred on sale or disposal of equipment. Other income was $0.4 million in the second quarter of 2011 compared with $0.1 million in the same period in 2010.

     Reorganization items. Reorganization items represent expense or income amounts that have been recognized as a direct result of the Chapter 11 Cases, prior to the Effective Date. For more information, see note 2 to the condensed consolidated financial statements.

     Income taxes. The effective income tax rate is the provision for income taxes stated as a percentage of income before the provision for income taxes. The effective income tax rate for the three months ended June 30, 2011 and 2010 was 45.7% benefit and 15.9% benefit, respectively. The effective tax rate for the three months ended June 30, 2011 was primarily impacted by a prior period adjustment. The effective tax rate for the three months ended June 30, 2010 was significantly impacted by non-deductible restructuring charges and post-petition interest.

     Net loss. Net loss for the three months ended June 30, 2011 was $27.1 million compared to $54.2 million for the same

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period in 2010. The difference in net loss between 2011 and 2010 is a result of the factors discussed above.

Six Months Ended June 30, 2011 Compared with Six Months Ended June 30, 2010

     The following table sets forth the percentages of revenues represented by selected items reflected in our consolidated statements of operations. The year-to-year comparisons of financial results are not necessarily indicative of future results (in thousands, except percentage of revenues data):

	Successor			Predecessor
	Company			Company			Combined						Predecessor Company
	One Hundred						Six Months Ended						Six Months Ended
	Fifty-Seven			Twenty-Four			June 30, 2011						June 30, 2010
	Days Ended			Days Ended						% of						% of
	June 30, 2011			January 24, 2011			$			Revenue			$			Revenue
													(Restated)
Revenues	$	451,038		$	66,378		$	517,416			100	%	$	542,364			100	%
Operating expenses:
Costs of services and sales		201,641			38,766			240,407			46			270,680			50
Selling, general and administrative		151,798			27,161			178,959			35			190,646			35
Depreciation and amortization		153,393			21,515			174,908			34			142,854			26
Reorganization related expense		5,246			—			5,246			1			—			—
Total operating expenses		512,078			87,442			599,520			116			604,180			111
Loss from operations		(61,040	)		(21,064	)		(82,104	)		(16	)		(61,816	)		(11	)
Interest expense		(29,487	)		(9,321	)		(38,808	)		(8	)		(70,351	)		(13	)
Other income (expense)		831			(132	)		699			—			131			—
Loss before reorganization items and income taxes		(89,696	)		(30,517	)		(120,213	)		(24	)		(132,036	)		(24	)
Reorganization items		—			897,313			897,313			174			(15,216	)		(3	)
(Loss) gain before income taxes		(89,696	)		866,796			777,100			150			(147,252	)		(27	)
Income tax benefit (expense)		38,176			(279,889	)		(241,713	)		(47	)		6,744			1
Net (loss) income	$	(51,520	)	$	586,907		$	535,387			103	%	$	(140,508	)		(26	)%

     Revenues decreased $24.9 million to $517.4 million in the first six months of 2011 compared to the same period in 2010. We derive our revenues from the following sources:

     Voice services. Voice services revenues decreased $18.1 million to $251.3 million during the first six months of 2011 compared to the same period in 2010, of which $15.1 million is attributable to a decrease in local calling services revenues and $3.0 million is due to a decrease in long distance services revenue. This decrease in voice services revenues is primarily due to the impact of a 9.3% decline in total switched access lines in service at June 30, 2011 compared to June 30, 2010, largely offset by a $8.4 million decline in SQI penalties and a $3.0 million decrease in PAP credits recorded during the first six months of 2011 as compared to the first six months of 2010. The decrease in the number of voice access lines is attributable to an increase in technology substitution and our competitors.

     Access. Access revenues decreased $8.6 million to $184.5 million during the first six months of 2011 compared to the same period in 2010. Growth in special access revenue is being offset by declines in switched access and end user

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revenues. Special access revenues increased by $1.9 million (2.0%) for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 primarily due to revenue assurance activities, including back-billing. Switched access revenues decreased $7.5 million (15.3%) and end user revenues decreased $3.0 million (6.0%) primarily due to a 9.3% decline in total switched access lines in service at June 30, 2011 compared to June 30, 2010.

     Data and Internet services. Data and Internet services revenues increased $2.3 million to $58.3 million in the first six months of 2011 compared to the same period in 2010. The increase was primarily attributable to a 5.4% increase in the number of HSD subscribers from June 30, 2010 to June 30, 2011 resulting from our bundling and other marketing efforts.

     Other services. Other services revenues decreased $0.7 million to $23.3 million in the first six months of 2011 compared to the same period in 2010.

Operating Expenses

     Cost of services and sales. Cost of services and sales decreased $30.3 million to $240.4 million in the first six months of 2011 compared to the same period in 2010. This decrease is mainly attributable to $12.3 million recognized in the six months ended June 30, 2010 for the abandonment of certain capital projects in addition to a reduction in access expenses associated with providing long distance and data and Internet services and certain employee expenses. In conjunction with fresh start accounting, on the Effective Date, the Company wrote off $4.8 million of deferred charges associated with customer activation fees of the predecessor company and recorded a $13.0 million liability for unfavorable union contracts. Accordingly, deferred charges related to customer activation fees decreased $4.6 million as compared to the three months ended June 30, 2010 and a $1.6 million reduction of employee expense was recorded for the amortization of unfavorable union contracts.

     Selling, general and administrative. Selling, general and administrative expenses decreased $11.7 million to $179.0 million in the first six months of 2011 compared to the same period in 2010. The decrease is primarily attributable to a reduction in contracted services, including professional fees incurred during the six months ended June 30, 2010 related to external audit services which were elevated in 2010. In addition, marketing expenses were reduced by $2.8 million and bad debt expense decreased $3.0 million from $16.5 million for the six months ended June 30, 2010 to $13.5 million for the six months ended June 30, 2011.

     Depreciation and amortization. Depreciation and amortization expense increased $32.1 million to $174.9 million in the first six months of 2011 compared to the same period in 2010. This is primarily attributable to the adoption of fresh start accounting upon the Effective Date whereby the carrying value of the long-lived assets of the Company were adjusted to fair value and the useful lives were adjusted.

     Reorganization related expense. Reorganization related expense represents expense or income amounts that have been recognized as a direct result of the Chapter 11 Cases, occurring after the Effective Date. During the six months ended June 30, 2011, reorganization related expense is mainly comprised of $5.9 million of restructuring professional fees primarily related to fresh start accounting and continuing work to settle outstanding claims.

Other Results

     Interest expense. Interest expense decreased $31.5 million to $38.8 million in the first six months of 2011 compared to the same period in 2010 due primarily to a significant decrease in our outstanding debt. Upon the filing of the Chapter 11 Cases, in accordance with the Reorganizations Topic of the ASC, we ceased the accrual of interest expense on the Notes and the Swaps as it was unlikely that such interest expense would be paid or would become an allowed priority secured or unsecured claim. We continued to accrue interest expense on the Pre-Petition Credit Facility, as such interest was considered an allowed claim pursuant to the Plan. Upon the Effective Date, we entered into the Exit Credit Agreement and began accruing interest on the Exit Credit Agreement Loans.

     Other income (expense). Other income (expense) includes non-operating gains and losses such as those incurred on sale or disposal of equipment. Other income was $0.7 million in the first six months of 2011 compared with $0.1 million in the same period in 2010.

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     Reorganization items. Reorganization items represent expense or income amounts that have been recognized as a direct result of the Chapter 11 Cases, prior to the Effective Date. For more information, see note 2 to the condensed consolidated financial statements.

     Income taxes. The effective income tax rate is the provision for income taxes stated as a percentage of income before the provision for income taxes. The effective income tax rate for the six months ended June 30, 2011 and 2010 was 31.1% expense and 4.6% benefit, respectively. The effective tax rate for the six months ended June 30, 2011 was primarily impacted by a prior period adjustment. The effective tax rate for the six months ended June 30, 2010 was impacted by a one-time, non-cash income tax charge of $6.8 million as a result of the enactment of the Health Care Act, which became law in March 2010 in addition to non-deductible restructuring charges and post-petition interest.

     Net (loss) income. Net income for the six months ended June 30, 2011 was $535.4 million compared to net loss of $140.5 million for the same period in 2010. The difference in net (loss) income between 2011 and 2010 is a result of the factors discussed above.

Off-Balance Sheet Arrangements

     We do not have any off-balance sheet arrangements.

Critical Accounting Policies

     Our critical accounting policies are as follows:

• Revenue recognition;

• Allowance for doubtful accounts;

• Accounting for pension and other post-retirement benefits;

• Accounting for income taxes;

• Depreciation of property, plant and equipment;

• Valuation of long-lived assets, including goodwill; and

• Accounting for software development costs.

     Revenue Recognition. We recognize service revenues based upon usage of our local exchange network and facilities and contract fees. Fixed fees for voice services, Internet services and certain other services are recognized in the month the service is provided. Revenue from other services that are not fixed fee or that exceed contracted amounts is recognized when those services are provided. Non-recurring customer activation fees, along with the related costs up to, but not exceeding, the activation fees, are deferred and amortized over the customer relationship period. SQI penalties and PAP penalties are recorded as a reduction to revenue. SQI penalties for Maine, New Hampshire and Vermont are recorded to other accrued liabilities on the consolidated balance sheets. PAP penalties for Maine and New Hampshire are recorded as a reduction to accounts receivable since these penalties are paid by the Company in the form of credits applied to the CLEC bills. PAP penalties in Vermont are recorded to other accrued liabilities as a majority of these penalties are paid to the Vermont Universal Service Fund, while the remaining credits assessed in Vermont are paid by the Company in the form of credits applied to CLEC bills. All SQI and Vermont PAP penalties related to the Predecessor Company are recorded to the Claims Reserve at June 30, 2011 and to Liabilities Subject to Compromise at December 31, 2010.

     We make estimated adjustments, as necessary, to revenue or accounts receivable for billing errors, including certain disputed amounts.

     Allowance for Doubtful Accounts. In evaluating the collectability of our accounts receivable, we assess a number of factors, including a specific customer’s or carrier’s ability to meet its financial obligations to us, the length of time the

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receivable has been past due and historical collection experience. Based on these assessments, we record both specific and general reserves for uncollectible accounts receivable to reduce the related accounts receivable to the amount we ultimately expect to collect from customers and carriers. If circumstances change or economic conditions worsen such that our past collection experience is no longer relevant, our estimate of the recoverability of our accounts receivable could be further reduced from the levels reflected in our accompanying consolidated balance sheet.

     On the Effective Date, the accounts receivable balances were valued at fair value using the net realizable value approach. The net realizable value approach was determined by reducing the gross receivable balance by our allowance for doubtful accounts. Due to the relatively short collection period, the net realizable value approach was determined to result in a reasonable indication of fair value of the assets.

     Accounting for Pension and Other Post-retirement Benefits. Some of our employees participate in our pension plans and other post-retirement benefit plans. In the aggregate, the pension plan benefit obligations exceed the fair value of pension plan assets, resulting in expense. Other post-retirement benefit plans have larger benefit obligations than plan assets, resulting in expense. Significant pension and other post-retirement benefit plan assumptions, including the discount rate used, the long-term rate-of-return on plan assets, and medical cost trend rates are periodically updated and impact the amount of benefit plan income, expense, assets and obligations.

     Accounting for Income Taxes. Our current and deferred income taxes are affected by events and transactions arising in the normal course of business, as well as in connection with the adoption of new accounting standards and non-recurring items. Assessment of the appropriate amount and classification of income taxes is dependent on several factors, including estimates of the timing and realization of deferred income tax assets and the timing of income tax payments. Actual payments may differ from these estimates as a result of changes in tax laws, as well as unanticipated future transactions affecting related income tax balances. We account for tax benefits taken or expected to be taken in our tax returns in accordance with the Income Taxes Topic of the ASC, which requires the use of a two step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions.

     Depreciation of Property, Plant and Equipment. We recognize depreciation on property, plant and equipment principally on the composite group remaining life method and straight-line composite rates over estimated useful lives ranging from three to 50 years. This method provides for the recognition of the cost of the remaining net investment in telephone plant, less anticipated net salvage value (if any), over the remaining asset lives. This method requires the periodic revision of depreciation rates. Changes in the estimated useful lives of property, plant and equipment or depreciation methods could have a material effect on our results of operations.

     Valuation of Long-lived Assets, Including Goodwill. We review our long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, we review goodwill and non-amortizable intangible assets for impairment on an annual basis. Several factors could trigger an impairment review such as:

• significant underperformance relative to expected historical or projected future operating results;

• significant regulatory changes that would impact future operating revenues;

• significant negative industry or economic trends; and

• significant changes in the overall strategy in which we operate our overall business.

     Goodwill was $243.2 million at June 30, 2011. We have recorded gross intangible assets related to customer relationships, the trade name and favorable leasehold agreements of $157.4 million as of June 30, 2011. As of June 30, 2011, there was $5.5 million of accumulated amortization recorded. The customer relationships and favorable leasehold agreements are being amortized over a weighted average life of approximately 9.0 years and 2.7 years, respectively. The trade name has an indefinite life and is, therefore, not amortized. The intangible assets are included in intangible assets on our condensed consolidated balance sheet.

     Goodwill impairment is determined using a two-step process. Step one compares the estimated fair value of our single

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wireline reporting unit (calculated using both the market approach and the income approach) to its carrying amount, including goodwill. The market approach compares our fair value, as measured by our market capitalization, to our carrying amount, which represents our stockholders’ equity balance. Effective January 1, 2011, step one of the goodwill impairment test was amended for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform step two of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist.

     Step two compares the implied fair value of our goodwill (i.e., our fair value less the fair value of our assets and liabilities, including identifiable intangible assets) to our goodwill carrying amount. If the carrying amount of our goodwill exceeds the implied fair value of our goodwill, the excess is required to be recorded as an impairment.

     Our only non-amortizable intangible asset other than goodwill is the FairPoint trade name. Consistent with the valuation methodology used to value the trade name at the Effective Date, we assess the fair value of the trade name based on the relief from royalty method. If the carrying amount of our trade name exceeds its estimated fair value, the asset is considered impaired. We performed our annual non-amortizable intangible asset impairment assessment as of October 1, 2010 and concluded that there was no indication of impairment at that time. As of December 31, 2010, as a result of changes to our financial projections related to the Chapter 11 Cases, we determined that a possible impairment of our non-amortizable intangible assets was indicated. We performed an interim non-amortizable intangible asset impairment assessment as of December 31, 2010 and determined that our trade name was not impaired.

     Given that the significant decline in our stock price since the Effective Date has caused our market capitalization to be below our book value, we reviewed indicators of impairment specified by the Intangibles — Goodwill and Other Topic of the ASC and concluded that we do not believe a triggering event has occurred. Therefore, an interim goodwill and non-amortizable intangible asset impairment test is not warranted at June 30, 2011. If this condition continues, it could imply that our goodwill and the value of our trade name may not be recoverable, thereby requiring an interim impairment test at September 30, 2011 or future periods that may result in a non-cash write-down of the goodwill and/or trade name, which could have a significant adverse impact on our results of operations.

     For our non-amortizable intangible asset impairment assessments, we make certain assumptions including an estimated royalty rate, a long-term growth rate, an effective tax rate and a discount rate, and apply these assumptions to projected future cash flows. Changes in one or more of these assumptions may result in the recognition of an impairment loss.

     As of December 31, 2010, as a result of changes to our financial projections related to the Chapter 11 Cases, we determined that a possible impairment of long-lived assets was indicated. In accordance with the Property, Plant and Equipment Topic of the ASC, we performed recoverability tests, based on undiscounted projected future cash flows associated with our long-lived assets, and determined that long-lived assets were not impaired at December 31, 2010.

     Accounting for Software Development Costs. We capitalize certain costs incurred in connection with developing or obtaining internal use software in accordance with the Intangibles-Goodwill and Other Topic of the ASC. Capitalized costs include direct development costs associated with internal use software, including direct labor costs and external costs of materials and services. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.

New Accounting Standards

     Effective January 1, 2011, we adopted the ASU regarding when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. This ASU modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the previously existing guidance, which required that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this ASU are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. The adoption of this ASU did not have a material impact on our condensed results of operations and financial position.

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     In October 2009, the FASB issued an ASU regarding revenue recognition for multiple deliverable arrangements. This method allows a vendor to allocate revenue in an arrangement using its best estimate of selling price if neither vendor- specific objective evidence nor third party evidence of selling price exists. Accordingly, the residual method of revenue allocation will no longer be permissible. This ASU must be adopted no later than the beginning of the first fiscal year beginning on or after June 15, 2010. The adoption of this ASU did not have a material impact on our condensed results of operations and financial position.

Inflation

      There are cost of living adjustment clauses in certain of the collective bargaining agreements covering our labor union employees. Considerable fluctuations in cost of living due to inflation could result in an adverse effect on our operations.

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Liquidity and Capital Resources

Summary

     Upon our emergence from Chapter 11 on January 24, 2011, we adopted fresh start accounting in accordance with guidance under the applicable reorganization accounting rules. Accordingly, our future and 157 days ended condensed consolidated statements of financial position, condensed consolidated statements of operations and condensed statement of cash flows will not be comparable in many respects to our condensed consolidated statements of financial position, condensed consolidated statements of operations and condensed statement of cash flows for periods prior to the adoption of fresh start accounting and prior to accounting for the effects of the reorganization.

     Our short-term and long-term liquidity needs primarily arise from: (i) interest and principal payments on our indebtedness; (ii) capital expenditures; (iii) working capital requirements as may be needed to support and grow our business; and (iv) payments into our qualified pension and post-retirement health plans. Our current and future liquidity is greatly dependent upon our operating results. We expect that our primary sources of liquidity will be cash flow from operations, cash on hand and funds available under the Exit Revolving Facility.

     Based on our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand (including amounts available under our Exit Revolving Facility) as well as cash flow from operations will enable us to meet our working capital, capital expenditure, debt service and other funding requirements for at least the next 12 months. We expect to be in compliance with the maintenance covenants contained in the Exit Credit Agreement for 2011. However, our anticipated results are subject to significant uncertainty and our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of certain covenants set forth in our financing agreements could result in an event of default thereunder. An event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be due and payable prior to maturity. Moreover, the lenders under our Exit Revolving Facility would have the option to terminate their commitments to make further extensions of revolving credit thereunder. If we are unable to repay our obligations under our Exit Credit Agreement, the lenders could proceed against any assets that were pledged to secure such facility.

     Cash and cash equivalents at June 30, 2011 totaled $13.1 million compared to $105.5 million at December 31, 2010, excluding restricted cash of $38.5 million and $4.1 million, respectively. On the Effective Date, we significantly reduced our cash on hand by approximately $89.9 million to establish the Cash Claims Reserve. Tax related claims were not included in the Cash Claims Reserve. As of the Effective Date, cash and cash equivalents totaled $10.3 million, excluding the Cash Claims Reserve of $82.8 million, following payment of $7.1 million in claims on the Effective Date. In accordance with the Plan, to the extent that claims are settled for amounts lower than estimated in the Cash Claims Reserve, we could reclaim restricted cash of up to $32.6 million. There is no certainty that we will reclaim any, or all, of this amount.

Cash Flows

     Net cash provided by (used in) operating activities was $95.6 million, ($81.1) million and $102.3 million for the 157 days ended June 30, 2011, 24 days ended January 24, 2011 and six months ended June 30, 2010, respectively. Net cash provided by operating activities for the 157 days ended June 30, 2011 represents the operating activities of the Successor Company; however, it includes payment of $55.9 million in claims of the Predecessor Company, of which $46.9 million of these claims were paid using funds of the Cash Claims Reserve established on the Effective Date by the Predecessor Company. After a $7.1 million payment of claims on the Effective Date, the Cash Claims Reserve totaled $82.8 million and is reflected in net cash used in operating activities during the 24 days ended January 24, 2011. Upon the filing of the Chapter 11 Cases, we continued to accrue interest expense on the Pre-Petition Credit Facility, as such interest was considered an allowed claim pursuant to the Plan. During the 24 days ended January 24, 2011 and six months ended June 30, 2010, no payments of interest were made, resulting in an increase in cash provided by operations of $9.0 million and $68.0 million, respectively. Upon our emergence from bankruptcy, we began paying interest on our outstanding debt in the normal course during the 157 days ended June 30, 2011.

     Net cash used in investing activities was $92.8 million, $12.5 million and $103.1 million for the 157 days ended June 30, 2011, 24 days ended January 24, 2011 and six months ended June 30, 2010, respectively, and is mainly comprised of capital expenditures for all periods.

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     Net cash (used in) provided by financing activities was ($1.7) million and $2.9 million for the 24 days ended January 24, 2011 and six months ended June 30, 2010, respectively. Net cash used in financing activities for the 157 days ended June 30, 2011 was immaterial. We paid $2.4 million of loan origination costs on the Exit Credit Agreement, of which $0.9 million and $1.5 million were paid during the 157 days ended June 30, 2011 and the 24 days ended January 24, 2011, respectively. During the six months ended June 30, 2010, additional proceeds of $5.5 million were borrowed on the Pre-Petition Credit Facility related to outstanding letters of credit that were drawn upon by the holders and we paid $1.1 million of loan origination costs related to the DIP Credit Facility.

     We expect our contributions to our Company sponsored employee pension plans and post-retirement health plans will be approximately $9.1 million in 2011, of which $6.8 million is expected to be paid during the third quarter of 2011 related to the employee pension plans. Contributions to our Company sponsored employee pension plans in future years may be significantly higher due to several factors, including fluctuations in the discount rate used to calculate the funding target, the performance of our pension asset portfolio, the number of retirees who elect to receive lump sum distributions from the pension plans and changes in the demographics of plan participants.

Capital Expenditures

     We expect our capital expenditures will be approximately $180 million to $200 million in 2011. We anticipate that we will fund these expenditures through cash flows from operations, cash on hand and funds available under the Exit Revolving Facility.

     We have a five year contract with our primary IT vendor, which was executed in 2009. In the six months ended June 30, 2011 and 2010, we spent approximately $11.9 million and $14.6 million, respectively, for services under such contract, of which approximately $6.7 million and $7.6 million, respectively, was capitalized in accordance with the Intangibles — Goodwill and Other Topic and the Interest Topic of the ASC and approximately $5.2 million and $7.0 million, respectively, was included in operating expenses. Our contract includes a baseline spend in 2011 with this vendor of approximately $22.1 million, which will be allocated between capital expenditures and operating expenses depending on the type of activities performed. While the contract term is five years, we have the ability to reduce the amount we spend with this vendor below the baseline amount by either in-sourcing certain work functions or finding alternate vendors. In order to reduce our spend below the contractual amount, we are required to provide six months notice to the vendor for the work functions we wish to move or eliminate.

     On May 31, 2011 we provided notice to this vendor of our intent to in-source or alternatively source certain functions which we expect will result in a reduction of the baseline amount by approximately fifty percent on a go-forward basis commencing on December 1, 2011. We expect that savings will be largely offset in the near term by an increase in internal information technology (“IT”) employees and by other vendors for these functions and other IT initiatives.

Debt

Exit Credit Agreement

     On the Effective Date, the Exit Borrowers entered into the Exit Credit Agreement. The Exit Credit Agreement is comprised of the Exit Revolving Facility and the Exit Credit Agreement Loans. On the Effective Date, we paid to the lenders providing the Exit Revolving Facility an aggregate fee equal to $1.5 million. Interest on the Exit Credit Agreement Loans accrues at an annual rate equal to either (a) LIBOR plus 4.50%, with a minimum LIBOR floor of 2.00% for the Exit Term Loan, or (b) a base rate plus 3.50% per annum in which base rate is equal to the highest of (x) Bank of America’s prime rate, (y) the federal funds effective rate plus 0.50% and (z) LIBOR (with minimum LIBOR floor of 2.00%) plus 1.00%. In addition, we are required to pay a 0.75% per annum commitment fee on the average daily unused portion of the Exit Revolving Facility. The entire outstanding principal amount of the Exit Credit Agreement Loans is due on the Exit Maturity Date; provided that on the third anniversary of the Effective Date, we must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and

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must pay a continuation fee of $0.75 million and, on the fourth anniversary of the Effective Date, we must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a second continuation fee of $0.75 million. The Exit Credit Agreement requires quarterly repayments of principal of the Exit Term Loan after the first anniversary of the Effective Date. In the second and third years following the Effective Date, such quarterly payments shall each be in an amount equal to $2.5 million; during the fourth year following the Effective Date, such quarterly payments shall each be in an amount equal to $6.25 million; and for the first three quarters during the fifth year following the Effective Date, such quarterly payments shall each be in an amount equal to $12.5 million, with all remaining outstanding amounts owed in respect of the Exit Credit Agreement being due and payable on the Exit Maturity Date.

     The Exit Credit Agreement Loans are guaranteed by all of our current and future direct and indirect subsidiaries, other than any subsidiary that is prohibited by applicable law from guaranteeing the obligations under the Exit Credit Agreement Loans and/or providing any security therefor without the consent of a state public utilities commission. The Exit Credit Agreement Loans as a whole are secured by liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties, with first lien and payment waterfall priority for the Exit Revolving Facility and second lien priority for the Exit Term Loan.

     The Exit Credit Agreement contains customary representations, warranties and affirmative covenants. In addition, the Exit Credit Agreement contains restrictive covenants that limit, among other things, the ability of the Exit Financing Loan Parties to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock. The Exit Credit Agreement also contains minimum interest coverage and maximum total leverage maintenance covenants, along with a maximum senior leverage covenant measured upon the incurrence of certain types of debt. The Exit Credit Agreement contains certain events of default, including failure to make payments, breaches of covenants and representations, cross defaults to other material indebtedness, unpaid and uninsured judgments, changes of control and bankruptcy events of default. The lenders’ commitments to fund amounts under the Exit Revolving Facility are subject to certain customary conditions. As of June 30, 2011, the Exit Borrowers were in compliance with all covenants under the Exit Credit Agreement.

     The above summary of the material terms of the Exit Credit Agreement Loans does not purport to be complete and is qualified in its entirety by reference to the text of (i) the Exit Credit Agreement, (ii) the Pledge Agreement, dated as of the Effective Date, made by the pledgors party thereto in favor of Bank of America, N.A., as administrative agent, for the benefit of certain secured parties, (iii) the Security Agreement, dated as of the Effective Date, by and among FairPoint Communications, FairPoint Logistics, our subsidiaries party thereto and Bank of America, N.A., as administrative agent, for the benefit of certain secured parties and (iv) the Continuing Guaranty Agreement, dated as of the Effective Date, made by and among the guarantors party thereto in favor of Bank of America, N.A., as administrative agent, for the benefit of certain secured parties.

Our DIP Facility

     In connection with the Chapter 11 Cases, on October 27, 2009, the DIP Borrowers entered into the DIP Credit Agreement with the DIP Lenders and the DIP Administrative Agent. The DIP Credit Agreement provided the DIP Financing. Pursuant to the Interim Order, the DIP Borrowers were authorized to enter into and immediately draw upon the DIP Credit Agreement on an interim basis in an aggregate amount of $20.0 million, pending a final hearing before the Bankruptcy Court. Pursuant to the Final DIP Order, the DIP Borrowers were permitted access to the total $75.0 million of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders of the Bankruptcy Court of which up to $30.0 million was also available in the form of one or more letters of credit that could be issued to third parties for our account. As of December 31, 2010, we had not borrowed any amounts under the DIP Credit Agreement other than letters of credit totaling $18.7 million that had been issued and were outstanding under the DIP Credit Agreement.

     On the Effective Date, the DIP Credit Agreement was converted into the new $75.0 million Exit Revolving Facility with a five-year term. All letters of credit outstanding under the DIP Credit Agreement were transferred to the Exit Credit Agreement on the Effective Date.

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Our Pre-Petition Credit Facility

     Our $2,030.0 million Pre-Petition Credit Facility consisted of a non-amortizing revolving facility in an aggregate principal amount of $200.0 million, a senior secured term loan A facility in an aggregate principal amount of $500.0 million (the “Term Loan A Facility”), a senior secured term loan B facility in the aggregate principal amount of $1,130.0 million (the “Term Loan B Facility” and, together with the Term Loan A Facility, the “Term Loan”) and a delayed draw term loan facility in an aggregate principal amount of $200.0 million (the “Delayed Draw Term Loan”). Spinco drew $1,160.0 million under the Term Loan immediately prior to being spun off by Verizon, and then FairPoint drew $470.0 million under the Term Loan and $5.5 million under the Delayed Draw Term Loan concurrently with the closing of the Merger.

     Subsequent to the Merger, we borrowed the remaining $194.5 million available under the Delayed Draw Term Loan. These funds were used for certain capital expenditures and other expenses associated with the Merger.

     As of December 31, 2010, we had borrowed $155.5 million under the Revolving Credit Facility and there were no outstanding letters of credit. Upon the event of default under the Pre-Petition Credit Facility relating to the Chapter 11 Cases, the commitments under the Revolving Credit Facility were automatically terminated. Accordingly, as of December 31, 2010, no funds remained available under the Revolving Credit Facility.

     On the Effective Date, the Pre-Petition Credit Facility and all obligations thereunder (except that the Pre-Petition Credit Facility continues in effect solely for the purposes of allowing creditors under the Pre-Petition Credit Facility to receive distributions under the Plan and to preserve certain rights of the administrative agent) were terminated.

Our Pre-Petition Notes

     Spinco issued, and we assumed in the Merger, $551.0 million aggregate principal amount of the Old Notes. The Old Notes were to mature on April 1, 2018 and were not redeemable at our option prior to April 1, 2013. The Old Notes were issued at a discount and, accordingly, at the date of their distribution, the Old Notes had a carrying value of $539.8 million (principal amount at maturity of $551.0 million less discount of $11.2 million). Following the filing of the Chapter 11 Cases, $9.9 million of discount on the Pre-Petition Notes was written off in order to adjust the carrying amount of our pre-petition debt to the Bankruptcy Court approved amount of the allowed claims for our pre-petition debt.

     Pursuant to the Old Notes exchanged in connection with our offer to exchange the Old Notes for the New Notes (the “Exchange Offer”), on July 29, 2009, we exchanged $439.6 million in aggregate principal amount of the Old Notes (which amount was equal to approximately 83% of the then outstanding Old Notes) for $458.5 million in aggregate principal amount of the New Notes (which amount included New Notes issued to tendering noteholders as payment for accrued and unpaid interest on the exchanged Old Notes up to, but not including, the Settlement Date).

     Upon the consummation of the Exchange Offer and the corresponding consent solicitation, substantially all of the restrictive covenants in the indenture governing the Old Notes were deleted or eliminated and certain of the events of default and various other provisions contained therein were modified.

     The filing of the Chapter 11 Cases constituted an event of default under the New Notes.

     On the Effective Date, all outstanding obligations under the Pre-Petition Notes and the indentures governing the Pre-Petition Notes were terminated.

Other Pre-Petition Agreements

     As a condition to the approval of the Merger and related transactions by state regulatory authorities we agreed to make certain capital expenditures following the completion of the Merger. The Merger Orders have been modified by Regulatory Settlements agreed to with representatives for each of Maine, New Hampshire and Vermont, and approved by

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the applicable regulatory authorities in Maine, New Hampshire and Vermont, and approved by the Bankruptcy Court as part of the Plan.

     We are required to make certain capital expenditures pursuant to the Regulatory Settlements. See note 15.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     As of June 30, 2011, we had total debt of $1,000.0 million, consisting of variable rate debt with an interest rate of 6.50% per annum, including applicable margins, as of June 30, 2011. As of June 30, 2011, the fair value of our debt was approximately $897.5 million based on the market prices of our debt at that date. Our Exit Credit Agreement Loans mature in 2016, provided that on the third anniversary of the Effective Date, we must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a continuation fee of $0.75 million and, on the fourth anniversary of the Effective Date, we must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a second continuation fee of $0.75 million.

     As of June 30, 2011, we had $63.0 million, net of $12.0 million outstanding letters of credit, available for additional borrowing under our Exit Revolving Facility. Interest payments on the Exit Term Loan are subject to a LIBOR floor of 2.00%. While LIBOR remains below 2.00% we will incur interest costs above market rates.

     We use variable rate debt to finance our operations, capital expenditures and acquisitions. The variable rate debt obligations expose us to variability in interest payments due to changes in interest rates. We believe it is prudent to limit the variability of a portion of our interest payments. To meet this objective, from time to time, we may enter into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk.

     We do not hold or issue derivative financial instruments for trading or speculative purposes.

     We are also exposed to market risk from changes in the fair value of our pension plan assets and from changes to rates at which benefit payments are discounted. For the six months ended June 30, 2011, the actual gain on the pension plan assets has been approximately 5.0%. Net periodic benefit cost for 2011 assumes a weighted average annualized expected return on plan assets of approximately 8.3%. Lower returns on plan assets and lower discount rates could negatively impact the funded status of the plan and we may be required to contribute additional funds to the pension plan.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

     As of the end of the period covered by this Quarterly Report, we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act). Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

     Based upon this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective due to the following material weaknesses which were identified in our Annual Report on Form 10-K for the year ended December 31, 2010 and which remain in existence as of the date of this report:

1.

Our information technology controls were not adequate. Specifically, our change management processes were not consistently followed to ensure all changes were appropriately authorized. In addition, access to our information systems was not appropriately restricted.

2.

Our management oversight and review procedures designed to monitor the accuracy of period-end accounting activities were ineffective. Specifically, our account reconciliation processes were not adequate to properly identify and resolve discrepancies between our billing system and our general ledger in a timely manner. In addition, project accounting controls were not adequate to ensure charges to capital projects were appropriate or that projects were closed in a timely manner. Furthermore, procedures for the review of our income tax provision and supporting schedules were not adequate to identify and correct errors in a timely manner.

     Our management has completed a number of steps designed to remediate these issues as discussed below. Management expects that the actions taken to date and additional actions planned will effectively eliminate the above referenced material weaknesses.

     We are committed to continuing to improve our internal control processes and will continue to review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may identify additional measures to address these material weaknesses or other deficiencies. Our management, with the oversight of the audit committee of our board of directors, will continue to assess and take steps to enhance the overall design and capability of our control environment in the future.

Changes in Internal Control Over Financial Reporting

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

     A number of control improvements have been implemented during 2011 to continue to address the material weaknesses described above. These improvements include:

• Restricting access to the privileged system account for our retail billing system;

• Restricting access to shared administrator accounts to individuals with a valid business need for accessing those accounts;

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• Revising access to human resource, general ledger, accounts receivable, accounts payable, enterprise asset management, fixed assets, inventory, and purchase order functions within the Oracle system to eliminate certain segregation of duties issues;

• Formalizing change management processes governing approval, testing and implementation of system and application changes;

• Implementing upfront system edits and automated feed of project data between the engineering project management system used for outside plant projects and the Oracle project accounting system;

• Enhancing the reconciliation procedures for various accounts, including the wholesale accounts receivable reconciliation;

• Implementing an account reconciliation software application to facilitate execution and management monitoring of account reconciliations; and

• Streamlining the process for preparation of the quarterly income tax provision.

     We continue to refine our processes to improve control and process effectiveness and efficiency. Such process refinements have been applied to virtually all processes for the Northern New England operations, including information technology, order provisioning, customer billing, payment processing, credit and collections, inventory management, accounts payable, payroll, human resource administration, tax and general ledger accounting.

     With the exception of the foregoing, there have been no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

     From time to time, we are involved in litigation and regulatory proceedings arising out of our operations. With the exception of the Chapter 11 Cases, management believes that we are 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 our financial position or results of operations.

Item 1A. Risk Factors.

     The risk factor presented below amends and restates the corresponding risk factor previously disclosed in “Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010.

     Concentration of ownership among stockholders may prevent new investors decisions.

     Based on Schedules 13D and 13G filed by the respective holders, as of August 1, 2011, there are some institutional holders who own 5% or more of our outstanding Common Stock. As a result, these stockholders may be able to exercise significant control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of corporate transactions and could gain significant control over our management and policies.

     The risk factor presented below replaces in its entirety the risk factor entitled “Our financial condition and results of operations could be adversely affected if assets held in our Company sponsored pension plans suffer significant losses in market value.” disclosed in “Item 1A. Risk Factors” of our 2010 Annual Report.

     Our required pension contributions may be impacted by several factors and an increase in our required contributions could have a material adverse impact on our business, financial condition, results of operations, liquidity and the market price of our Common Stock.

     We sponsor pension and post-retirement healthcare plans for certain employees. During the six months ended June 30, 2011, we experienced actual gains on pension plan assets totaling approximately 5.0%. Since the actuarial value of plan assets is dependent on the value of the assets held by each plan, a significant decline in the market value of such assets could have a detrimental impact on our pension plans and could result in us making additional contributions to these plans, as required under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Furthermore, if the third party trustee who holds these plan assets were to become insolvent, access to the plan assets could be limited and we could be required to pay participant benefits from our assets. Such required contributions could have a material adverse impact on our business, financial condition, results of operations, liquidity and the market price of our Common Stock.

     In addition, our required pension contributions may be impacted by several factors, including fluctuations in the discount rate used to calculate the funding target, the performance of our pension asset portfolio, the number of retirees who elect to receive lump sum distributions from the pension plans and changes in the demographics of plan participants. Fluctuations or changes in any of these factors may cause the funded status of our plans to decline which may cause our required contributions under ERISA to increase significantly. Such an increase in our required contributions could have a material adverse impact on our business, financial condition, results of operations, liquidity and the market price of our Common Stock.

     The risk factor presented below is hereby added to the risk factors previously disclosed in “Item 1A. Risk Factors” of the 2010 Annual Report under the heading “Risks Related to our Business”.

     Our goodwill and/or long-lived assets may become impaired in the future.

     Upon our emergence from Chapter 11 bankruptcy protection, we recorded our property, plant and equipment at fair value and we recorded amortizable intangible assets of $99.4 million, a non-amortizable intangible asset of $58.0 million and non-amortizable goodwill of $243.2 million. Amortizable long-lived assets must be reviewed for impairment whenever indicators of impairment exist. Non-amortizable long-lived assets and goodwill are required to be reviewed for impairment on an annual basis or more frequently whenever indicators of impairment exist. Indicators of impairment could include, but are not limited to: an inability to perform at levels that were forecasted; a permanent decline in market capitalization; implementation of restructuring plans; changes in industry trends; and/or unfavorable changes in our capital structure, cost of debt, interest rates or capital expenditures levels. Situations such as these could result in an impairment that would require a material non-cash charge to our results of operations and could have a material adverse effect on our consolidated results of operations.

     For example, a significant decline in our stock price could cause our market capitalization to fall below our book value. If this occurs, we may be required to conduct impairment testing and write down goodwill. As a result of the significant decline in our stock price from the Effective Date through August 9, 2011, our market capitalization is below our book value and we were required to review certain indicators of impairment at June 30, 2011. While we concluded that a goodwill impairment triggering event did not occur at June 30, 2011, if this condition continues, it could imply that our goodwill may not be recoverable. This would result in a non-cash write-down of goodwill, which could have a material adverse impact on our consolidated results of operations.

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     There have been no other material changes to the risk factors disclosed in our 2010 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     During the quarter ended June 30, 2011, pursuant to the Plan, the Company issued (i) 2,183 shares of New Common Stock in the aggregate to holders of FairPoint Communications Unsecured Claims, and (ii) Warrants to purchase an aggregate of 3,723 shares of New Common Stock, subject to adjustment upon the occurrence of certain events described in the Warrant Agreement.

     Based on the Confirmation Order, the Company relied on Section 1145(a)(1) of the Bankruptcy Code to issue the new securities described above.

Item 3. Defaults Upon Senior Securities.

     Not applicable.

Item 4. (Removed and Reserved).

Item 5. Other Information.

     Not applicable.

Item 6. Exhibits.

The exhibits filed as part of this Quarterly Report are listed in the index to exhibits immediately preceding such exhibits, which index to exhibits is incorporated herein by reference.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized, and the undersigned also has signed this Quarterly Report in his capacity as the Registrant’s Executive Vice President and Chief Financial Officer (Principal Financial Officer).

		FairPoint Communications, Inc.
Date: August 9, 2011	By:	/s/ Ajay Sabherwal
		Name:	Ajay Sabherwal
		Title:  Executive Vice President           and Chief Financial Officer

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Exhibit Index

Exhibit No.	Description
2.1	Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code.(1)
3.1	Ninth Amended and Restated Certificate of Incorporation of FairPoint.(2)
3.2	Second Amended and Restated By Laws of FairPoint.(2)
4.1	Warrant Agreement, dated as of January 24, 2011, by and between FairPoint and The Bank of New York Mellon.(3)
4.2	Specimen Stock Certificate.(2)
4.3	Specimen Warrant Certificate.(3)
10.1	Credit Agreement, dated as of January 24, 2011, by and among FairPoint, FairPoint Logistics, Bank of America, N.A., as administrative agent, the other lenders party thereto and Banc of America Securities LLC, as sole lead arranger and sole book manager.(3)
10.2	Pledge Agreement, dated as of January 24, 2011, made by the pledgors party thereto in favor of Bank of America, N.A. as administrative agent, for the benefit of certain secured parties.(3)
10.3	Security Agreement, dated as of January 24, 2011, by and among FairPoint, FairPoint Logistics, the subsidiaries of FairPoint party thereto and Bank of America, N.A., as administrative agent.(3)
10.4	Continuing Guaranty Agreement, dated as of January 24, 2011, made by and among the guarantors party thereto in favor of Bank of America, N.A., as administrative agent, for the benefit of certain secured parties.(3)
10.5	Registration Rights Agreement, dated as of January 24, 2011, by and between FairPoint Communications, Inc. and Angelo, Gordon & Co., L.P.(3)
10.6	FairPoint Litigation Trust Agreement, dated as of January 24, 2011.(3)
10.7	Form of Director Indemnity Agreement.(4)
10.8	Amended and Restated Tax Sharing Agreement, dated as of November 9, 2000, by and among FairPoint and its Subsidiaries.(5)
10.9	Employment Agreement, dated as of August 16, 2010, by and between FairPoint and Paul H. Sunu.†(6)
10.10	Consulting Agreement, dated as of August 16, 2010, by and between FairPoint and David L. Hauser.(6)
10.11	Change in Control and Severance Agreement, dated as of March 14, 2007, by and between FairPoint and Peter G. Nixon.†(7)
10.12	Change in Control and Severance Agreement, dated as of March 14, 2007, by and between FairPoint and Shirley J. Linn.†(7)
10.13	Change in Control and Severance Agreement, dated as of September 3, 2008, by and between FairPoint and Ajay Sabherwal.†(6)
10.14	FairPoint Communications, Inc. 2010 Long Term Incentive Plan.†(1)
10.15	FairPoint Communications, Inc. 2010 Success Bonus Plan.†(1)
10.16	Form of Restricted Share Award Agreement—FairPoint Communications, Inc. 2010 Long Term Incentive Plan.†(1)
10.17	Stipulation filed with the Maine Public Utilities Commission, dated December 12, 2007.(8)
10.18	Amended Stipulation filed with the Maine Public Utilities Commission dated December 21, 2007(9)
10.19	Stipulation filed with the Vermont Public Service Board, dated January 8, 2008.(10)
10.20	Stipulation filed with the New Hampshire Public Utilities Commission, dated January 23, 2008.(11)
10.21	Letter Agreement, dated as of March 30, 2008, by and between the Staff of the New Hampshire Public Utilities Commission and Verizon Communications Inc.(9)
10.22	Letter, dated as of May 12, 2009, from the Staff of the New Hampshire Public Utilities Commission to FairPoint.(12)
10.23	Post Filing Regulatory Settlement—New Hampshire, dated as of February 5, 2010, by and between FairPoint and New Hampshire Public Utilities Commission Staff Advocates.(1)
10.24	Post Filing Regulatory Settlement—Maine, dated as of February 9, 2010, by and among FairPoint, Maine Public Utilities Commission and Maine Office of the Public Advocate.(1)
10.25	Post Filing Regulatory Settlement—Vermont, dated as of February 5, 2010, by and between FairPoint and Vermont Department of Public Service.(1)
10.26	Employment Agreement, dated as of July 1, 2011, by and between FairPoint and Kathleen McLean.*†

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Exhibit No.	Description
10.27	Employment Agreement, dated as of July 1, 2011, by and between FairPoint and Kenneth W. Amburn.*†
11	Statement Regarding Computation of Per Share Earnings (included in the financial statements contained in this Quarterly Report).
21	Subsidiaries of FairPoint.*
31.1	Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*‡
32.2	Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*‡
99.1	Order Confirming Debtors’ Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated as of December 29, 2010.(1)
99.2	Order of the Maine Public Utilities Commission, dated February 1, 2008.(13)
99.3	Order of the Vermont Public Service Board, dated February 15, 2008.(14)
99.4	Order of the New Hampshire Public Utilities Commission, dated February 25, 2008.(15)
101.INS	XBRL Instance Document.**
101.SCH	XBRL Taxonomy Extension Schema Document.**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.**
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.**
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.**

* Filed herewith.

† Indicates a management contract or compensatory plan or arrangement.

‡ Pursuant to SEC Release No. 33-8238, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Act and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

** Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

(1) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 14, 2011.

(2) Incorporated by reference to the Registration Statement on Form 8-A of FairPoint filed on January 24, 2011.

(3) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 25, 2011, Film Number 11544980.

(4) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 25, 2011, Film Number 11544991.

(5) Incorporated by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended September 30, 2000.

(6) Incorporated by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended September 30, 2010.

(7) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on March 19, 2007.

(8) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on December 13, 2007.

(9) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on April 3, 2008.

(10) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 8, 2008.

(11) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 24, 2008.

(12) Incorporated by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended June 30, 2009.

(13) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on February 6, 2008.

(14) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on February 21, 2008.

(15) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on February 25, 2008.

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EX-10.26

Exhibit 10.26

EMPLOYMENT AGREEMENT

          This EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of this 1st day of July, 2011 (the “Commencement Date”) by and between FairPoint Communications, Inc. (the “Company”), a Delaware corporation, and Kathleen McLean (the “Executive”).

W I T N E S S E T H :

          WHEREAS, the Company desires to employ Executive and to enter into this Agreement embodying the terms of such employment, and Executive desires to enter into this Agreement and to accept such employment, subject to the terms and provisions of this Agreement.

          NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, the Company and Executive hereby agree as follows:

          Section 1. Definitions.

          (a) “Accrued Obligations” shall mean (i) all accrued but unpaid Base Salary through the date of termination of Executive’s employment, (ii) any unpaid or unreimbursed expenses incurred in accordance with Section 7 hereof, (iii) any benefits provided under the Company’s employee benefit plans upon a termination of employment, in accordance with the terms contained therein, and (iv) any amounts payable under the FairPoint Communications, Inc. 2010 Long Term Incentive Plan (“LTIP”), in accordance with the terms contained therein.

          (b) “Cause” shall mean (i) Executive’s act(s) of gross negligence or willful misconduct in the course of Executive’s employment hereunder, (ii) willful failure or refusal by Executive to perform in any material respect her duties or responsibilities, (iii) misappropriation (or attempted misappropriation) by Executive of any assets or business opportunities of the Company or any other member of the Company Group, (iv) embezzlement or fraud committed (or attempted) by Executive, or at her direction, (v) Executive’s conviction of, indictment for, or pleading “guilty” or “ no contest” to, (x) a felony or (y) any other criminal charge that has, or could be reasonably expected to have, an adverse impact on the performance of Executive’s duties to the Company or any other member of the Company Group or otherwise result in material injury to the reputation or business of the Company or any other member of the Company Group, (vi) any material violation by Executive of the policies of the Company, including but not limited to those relating to sexual harassment or business conduct, and those otherwise set forth in the manuals or statements of policy of the Company, which violation has a material adverse effect on the Company, or (vii) Executive’s material breach of this Agreement or material breach of the Non-Interference Agreement.

          (c) “Change in Control” shall have the same meaning as defined in the LTIP, as in effect on the date hereof; provided, however, that there shall be no provision for any threatened or anticipated Change in Control that does not actually occur.

          (d) “Disability” shall mean any physical or mental disability or infirmity of Executive that prevents the performance of Executive’s duties for a period of (i) ninety (90) consecutive days or (ii) one hundred twenty (120) non-consecutive days during any twelve (12) month period. Any question as to the existence, extent, or potentiality of Executive’s Disability upon which Executive and the Company cannot agree shall be determined by a qualified, independent physician selected by the Company and approved by Executive (which approval shall not be unreasonably withheld). The determination of any such physician shall be final and conclusive for all purposes of this Agreement.

          (e) “Good Reason” shall mean, without Executive’s consent, (i) a material reduction in Base Salary set forth in Section 4(a) hereof or Annual Bonus opportunity set forth in Section 4(b) hereof, (ii) the relocation of Executive’s principal place of employment (as provided in Section 3(b) hereof) more than fifty (50) miles from its current location, or (iii) any other material breach of a provision of this Agreement by the Company (other than a provision that is covered by clause (i) or (ii) above). Executive acknowledges and agrees that her exclusive remedy in the event of any breach of this Agreement shall be to assert Good Reason pursuant to the terms and conditions of Section 8(e) hereof. Notwithstanding the foregoing, during the Term of Employment, in the event that the Board reasonably believes that Executive may have engaged in conduct that could constitute Cause hereunder, the Board may, in its sole and absolute discretion, suspend Executive from performing her duties hereunder, and in no event shall any such suspension constitute an event pursuant to which Executive may terminate employment with Good Reason or otherwise constitute a breach hereunder; provided, that no such suspension shall alter the Company’s obligations under this Agreement during such period of suspension.

          (f) “Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust (charitable or non-charitable), unincorporated organization, or other form of business entity.

          Section 2. Acceptance and Term of Employment.

          The Company agrees to employ Executive, and Executive agrees to serve the Company, on the terms and conditions set forth herein. The term of employment (the “Term of Employment”) shall commence on the Commencement Date and shall continue during the period ending on the close of business of the three (3) year anniversary of the Commencement Date, unless terminated sooner as provided in Section 8 or unless the Company has provided Executive with notice of its intention to renew the Term of Employment for a specific period of time, such notice to be given not less than one hundred twenty (120) days prior to the expiration of the three (3) year anniversary of the Commencement Date. Following the three year Term of Employment (or the applicable extension term, if any), the Executive shall continue on an at will basis until such time as the Company provides to Executive a written notice of termination pursuant to the provisions of Section 18 hereof.

          Section 3. Position, Duties, and Responsibilities; Place of Performance.

          (a) Position, Duties and Responsibilities. During the Term of Employment, Executive shall be employed and serve as Executive Vice President and Chief Information

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Officer of the Company (with such title subject to change from time to time as determined by the Board of Directors of the Company (the “Board”) together with such other position or positions consistent with Executive’s title as the Chief Executive Officer of the Company (the “CEO”) shall specify from time to time), and shall have such duties and responsibilities commensurate with such title. Executive also agrees to serve, at the request of the CEO, as an officer of any other direct or indirect subsidiary of the Company (each such subsidiary being, together with the Company, a member of the “Company Group”), in each case without additional compensation.

          (b) Performance. Executive shall devote her full business time, attention, skill, and best efforts to the performance of her duties under this Agreement and shall not engage in any other business or occupation during the Term of Employment, including, without limitation, any activity that (x) conflicts with the interests of the Company or any other member of the Company Group, (y) interferes with the proper and efficient performance of Executive’s duties for the Company, or (z) interferes with Executive’s exercise of judgment in the Company’s best interests. Notwithstanding the foregoing, nothing herein shall preclude Executive from (i) serving, with the prior written consent of the CEO, as a member of the boards of directors or advisory boards (or their equivalents in the case of a non-corporate entity) of non-competing businesses and charitable organizations, (ii) engaging in charitable activities and community affairs, and (iii) managing personal investments and affairs; provided, however, that the activities set out in clauses (i), (ii) and (iii) shall be limited by Executive so as not to interfere, individually or in the aggregate, with the performance of her duties and responsibilities hereunder. Executive’s principal place of employment shall be in Charlotte, North Carolina, although Executive understands and agrees that she may be required to travel from time to time for business reasons.

          Section 4. Compensation.

          During the Term of Employment, Executive shall be entitled to the following compensation:

          (a) Base Salary. Executive shall be paid an annualized base salary (the “Base Salary”), payable in accordance with the regular payroll practices of the Company, of not less than Three Hundred Thousand Dollars ($300,000), with increases, if any, as may be approved in writing by the Compensation Committee of the Board of Directors (the “Compensation Committee”).

          (b) Annual Bonus. Executive shall be eligible for an annual incentive bonus award (the “Annual Bonus”) through participation in the Company’s Annual Incentive Plan in respect of each fiscal year during the Term of Employment, with the actual Annual Bonus payable being based upon the level of achievement of annual Company and individual performance objectives for such fiscal year, as determined by the Compensation Committee and communicated to Executive. The Annual Bonus shall be paid to Executive at the same time as annual bonuses are generally payable to other senior executives of the Company subject to Executive’s continuous employment through the payment date.

          (c) Other Plans. Executive shall be eligible for consideration by the Compensation Committee to participate in the benefit and other plans made available generally

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to senior executives of the Company, including but not limited to the LTIP, subject to the terms and conditions as may be established from time to time by the Compensation Committee and communicated to Executive. Upon the occurrence of a Change in Control, all of Executive’s unvested benefits under the LTIP shall be accelerated and shall vest in full.

          (d) Indemnification. The Company shall indemnify Executive and hold Executive harmless in connection with the defense of any lawsuit or other claim to which she is made a party by reason of being an officer or employee of the Company, to the fullest extent permitted by the laws of the State of Delaware, as in effect at the time of the subject act or omission; provided that any settlement, consent to judgment, or similar action taken by Executive without the prior written consent of the Company in respect of any such lawsuit or other claim shall not be subject to indemnification hereunder.

          Section 5. Employee Benefits.

          During the Term of Employment, Executive shall be entitled to participate in health, insurance, retirement, and other benefits provided generally to similarly situated employees of the Company. Executive shall also be entitled to the same number of holidays, vacation days, and sick days, as well as any other benefits, in each case as are generally allowed to similarly situated employees of the Company in accordance with the Company policy as in effect from time to time. Nothing contained herein shall be construed to limit the Company’s ability to amend, suspend, or terminate any employee benefit plan or policy at any time without providing Executive notice, and the right to do so is expressly reserved.

          Section 6. Key-Man Insurance.

          At any time during the Term of Employment, the Company shall have the right to insure the life of Executive for the sole benefit of the Company, in such amounts, and with such terms, as it may determine. All premiums payable thereon shall be the obligation of the Company. Executive shall have no interest in any such policy, but agrees to cooperate with the Company in procuring such insurance by submitting to physical examinations, supplying all information required by the insurance company, and executing all necessary documents, provided that no financial obligation is imposed on Executive by any such documents.

          Section 7. Reimbursement of Business Expenses.

          Executive is authorized to incur reasonable business expenses in carrying out her duties and responsibilities under this Agreement, and the Company shall promptly reimburse her for all such reasonable business expenses, subject to documentation in accordance with the Company’s policy, as in effect from time to time.

          Section 8. Termination of Employment.

          (a) General. The Term of Employment shall terminate upon the earliest to occur of (i) Executive’s death, (ii) a termination by reason of a Disability, (iii) a termination by the Company with or without Cause, (iv) a termination by Executive with or without Good Reason, and (v) delivery by the Company to Executive of a termination notice at any time subsequent to the close of business on the last day of the Term of Employment. Upon any

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termination of Executive’s employment for any reason, except as may otherwise be requested by the Company in writing and agreed upon in writing by Executive, Executive shall resign from any and all directorships, committee memberships, and any other positions Executive holds with the Company or any other member of the Company Group. Notwithstanding anything herein to the contrary, the payment (or commencement of a series of payments) hereunder of any nonqualified deferred compensation (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the “Code”)) upon a termination of employment shall be delayed until such time as Executive has also undergone a “separation from service” as defined in Treas. Reg. 1.409A-1(h), at which time such nonqualified deferred compensation (calculated as of the date of Executive’s termination of employment hereunder) shall be paid (or commence to be paid) to Executive on the schedule set forth in this Section 8 as if Executive had undergone such termination of employment (under the same circumstances) on the date of her ultimate “separation from service.”

          (b) Termination Due to Death or Disability. Executive’s employment shall terminate automatically upon her death. The Company may terminate Executive’s employment immediately upon the occurrence of a Disability, such termination to be effective upon Executive’s receipt of written notice of such termination. Upon Executive’s death or in the event that Executive’s employment is terminated due to her Disability, Executive or her estate or her beneficiaries, as the case may be, shall be entitled to:

          (i) The Accrued Obligations;

          (ii) Any unpaid Annual Bonus in respect of any completed fiscal year that has ended prior to the date of such termination, which amount shall be paid at such time annual bonuses are paid to other senior executives of the Company, but in no event later than the date that is 2¹/2 months following the last day of the fiscal year in which such termination occurred.

Following Executive’s death or a termination of Executive’s employment by reason of a Disability, except as set forth in this Section 8(b), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

          (c) Termination by the Company with Cause.

          (i) The Company may terminate Executive’s employment at any time with Cause, effective upon Executive’s receipt of written notice of such termination; provided, however, that with respect to any Cause termination relying on clause (ii) of the definition of Cause set forth in Section 1(b) hereof, to the extent that such act or acts or failure or failures to act are curable, Executive shall be given not less than ten (10) days’ written notice by the Board of its intention to terminate her with Cause, such notice to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination with Cause is based, and such termination shall be effective at the expiration of such ten (10) day notice period unless Executive has fully cured such act or acts or failure or failures to act that give rise to Cause during such period.

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               (ii) In the event that the Company terminates Executive’s employment with Cause, she shall be entitled only to the Accrued Obligations. Following such termination of Executive’s employment with Cause, except as set forth in this Section 8(c)(ii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

          (d) Termination by the Company without Cause or upon Delivery of a Termination Notice from the Company to the Executive. The Company may terminate Executive’s employment at any time without Cause, effective upon Executive’s receipt of written notice of such termination, or by delivery to Executive of a written notice of termination in accordance with the provisions of Section 2 above.

               (i) In the event that Executive’s employment is terminated by the Company without Cause (other than due to death or Disability) or upon the Company’s delivery of a termination notice, in either case prior to the expiration of the Term of Employment (for example, the termination must be effected or the termination notice must be delivered to Executive prior to the expiration of three (3) years from the Commencement Date), Executive shall be entitled to:

(A)	The Accrued Obligations;
(B)	Any unpaid Annual Bonus in respect of any completed fiscal year that has ended prior to the date of such termination, which amount shall be paid at such time annual bonuses are paid to other senior executives of the Company, but in no event later than the date that is 21/2 months following the last day of the fiscal year in which such termination occurred;
(C)	An amount equal to the sum of:

(x)	two (2) times the amount of Executive’s then-current Base Salary;
(y)	two (2) times the amount of Executive’s average Annual Bonus where such average is determined by reference to the actual Annual Bonus paid to Executive for the immediately two (2) preceding fiscal years,
(z)	the cost of continued health and disability insurance coverage for Executive and her covered dependents during the twenty four (24) months following such termination, based on the monthly cost of continuation coverage under COBRA as of the date of termination, as applicable, under the applicable Company benefit plans, such amounts to be paid in accordance with the Company’s regular payroll practices; and

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(D) if any such termination is within six (6) months before or six (6) months after a Change in Control, the amount payable under Section 8(d)(i)(C)(y) shall be adjusted to the greater of (A) the amount payable under Section 8(d)(i)(C)(y), or (B) two (2) times the amount of Executive’s target Annual Bonus for the current fiscal year. To the extent that the amount payable under this Section 8(d)(i)(D) is greater than the amount payable under Section 8(d)(i)(C), the deficiency shall be paid at the effective time of the occurrence of a Change in Control.

          (ii) In the event that Executive’s employment is terminated by the Company without Cause (other than due to death or Disability) or upon the Company’s delivery of a termination notice, in either case after the expiration of the Term of Employment (for example, the termination is effected or the termination notice is delivered to Executive subsequent to the expiration of three (3) years from the Commencement Date, herein an “At Will Termination”), Executive shall be entitled to the Accrued Obligations only; provided, however, if the At Will Termination is effected within six (6) months prior to a Change in Control, Executive shall be entitled to each of the payments and benefits described in clauses (B), (C) and (D) above.

Notwithstanding the foregoing, the payments and benefits described in clauses (B), (C) and (D) above shall immediately terminate, and the Company shall have no further obligations to Executive with respect thereto, in the event that Executive breaches any provision of the Non-Interference Agreement.

Following such termination of Executive’s employment by the Company without Cause or upon the Company’s delivery to Executive of a termination notice, except as set forth in this Section 8(d), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

For the avoidance of doubt, Executive’s sole and exclusive remedy upon a termination of employment by the Company without Cause or upon the expiration of the Term of Employment, in either case following the Company’s delivery to Executive of a termination notice which termination is effected or where the termination notice is delivered prior to the expiration of the date that is three (3) years subsequent to the Commencement Date, shall be receipt of the Severance Benefits and the Accrued Obligations.

          (e) Termination by Executive with Good Reason. Executive may terminate her employment with Good Reason by providing the Company ten (10) days’ written notice setting forth in reasonable specificity the event that constitutes Good Reason, which written notice, to be effective, must be provided to the Company within sixty (60) days of the occurrence of such event. During such ten (10) day notice period, the Company shall have a cure right (if curable), and if not cured within such period, Executive’s termination will be effective upon the expiration of such cure period. Executive shall be entitled to the same payments and benefits as provided in Section 8(d) hereof for a termination by the Company without Cause, subject to the same conditions on payment and benefits as described in Section 8(d) hereof; provided, however, that Executive shall also be entitled to accelerated vesting of the next tranche of benefits payable

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under the LTIP. Following such termination of Executive’s employment by Executive with Good Reason, except as set forth in this Section 8(e), Executive shall have no further rights to any compensation or any other benefits under this Agreement. For the avoidance of doubt, Executive’s sole and exclusive remedy upon a termination of employment with Good Reason shall be receipt of the amounts as set forth in this Section 8(e).

          (f) Termination by Executive without Good Reason or upon Delivery by Executive to Company of a Termination Notice. Executive may terminate her employment without Good Reason by providing the Company thirty (30) days’ written notice of such termination or by delivery of a written termination notice in accordance with the provisions of Section 2 above. In the event of a termination of employment by Executive under this Section 8(f), Executive shall be entitled only to the Accrued Obligations. In the event of termination of Executive’s employment without Good Reason, the Company may, in its sole and absolute discretion, by written notice accelerate such date of termination without changing the characterization of such termination as a termination by Executive without Good Reason. Following such termination of Executive’s employment by Executive without Good Reason or upon Executive’s delivery to Company of a termination notice, except as set forth in this Section 8(f), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

          (g) Release. Notwithstanding any provision herein to the contrary, the payment of any amount or provision of any benefit pursuant to subsection (b), (d), or (e) of this Section 8 (other than the Accrued Obligations) (collectively, the “Severance Benefits”) shall be conditioned upon Executive’s execution, delivery to the Company, and non-revocation of a release of claims (under a release of claims form, the form and content of which are acceptable to the Company, and the expiration of any revocation period contained in such release of claims) within sixty (60) days following the date of Executive’s termination of employment hereunder. If Executive fails to execute the release of claims in such a timely manner so as to permit any revocation period to expire prior to the end of such sixty (60) day period, or timely revokes her acceptance of such release following its execution, Executive shall not be entitled to any of the Severance Benefits. Further, to the extent that any of the Severance Benefits constitutes “nonqualified deferred compensation” for purposes of Section 409A of the Code, any payment of any amount or provision of any benefit otherwise scheduled to occur prior to the sixtieth (60^th) day following the date of Executive’s termination of employment hereunder, but for the condition on executing the release of claims as set forth herein, shall not be made until the first regularly scheduled payroll date following such sixtieth (60^th) day, after which any remaining Severance Benefits shall thereafter be provided to Executive according to the applicable schedule set forth herein. For the avoidance of doubt, in the event of a termination due to Executive’s death or Disability, Executive’s obligations herein to execute and not revoke the release of claims may be satisfied on her behalf by her estate or a person having legal power of attorney over her affairs.

          Section 9. Non-Interference Agreement.

          As a condition to receipt of the benefits set forth under this Agreement, to which Executive acknowledges are incremental to the benefits and compensation available to Executive immediately prior to the Commencement Date, Executive shall have executed and delivered to

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the Company a non-interference agreement (the “Non-Interference Agreement”) in the form of the Confidentiality, Non-Interference and Invention Assignment Agreement attached hereto as Exhibit A. The parties hereto acknowledge and agree that this Agreement and the Non-Interference Agreement shall be considered separate contracts.

          Section 10. Representations and Warranties of Executive.

          Executive represents and warrants to the Company that:

          (a) Executive is entering into this Agreement voluntarily and that her employment hereunder and compliance with the terms and conditions hereof will not conflict with or result in the breach by her of any agreement to which she is a party or by which she may be bound;

          (b) Executive has not violated, and in connection with her employment with the Company will not violate, any non-solicitation, non-competition, or other similar covenant or agreement of a prior employer by which she is or may be bound; and

          (c) in connection with her employment with the Company, Executive will not use any confidential or proprietary information she may have obtained in connection with employment with any prior employer.

          Section 11. Taxes.

          The Company may withhold from any payments made under this Agreement all applicable taxes, including but not limited to income, employment, and social insurance taxes, as shall be required by law. Executive acknowledges and represents that the Company has not provided any tax advice to her in connection with this Agreement and that she has been advised by the Company to seek tax advice from her own tax advisors regarding this Agreement and payments that may be made to her pursuant to this Agreement, including specifically, the application of the provisions of Section 409A of the Code to such payments.

          Section 12. Mitigation; Company Recovery Rights.

          Executive shall not be required to mitigate the amount of any payment provided pursuant to this Agreement by seeking other employment or otherwise, and the amount of any payment provided for pursuant to this Agreement shall not be reduced by any compensation earned as a result of Executive’s other employment or otherwise. Any payment pursuant to this Agreement shall, however, be subject to any rights the Company may have under Section 304(b) of the Sarbanes-Oxley Act of 2002 or Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

          Section 13. Additional Section 409A Provisions.

          Notwithstanding any provision in this Agreement to the contrary:

          (a) Any payment otherwise required to be made hereunder to Executive at any date as a result of the termination of Executive’s employment shall be delayed for such period of

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time as may be necessary to meet the requirements of Section 409A(a)(2)(B)(i) of the Code (the “Delay Period”). On the first business day following the expiration of the Delay Period, Executive shall be paid, in a single cash lump sum, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence, and any remaining payments not so delayed shall continue to be paid pursuant to the payment schedule set forth herein.

          (b) Each payment in a series of payments hereunder shall be deemed to be a separate payment for purposes of Section 409A of the Code.

          (c) To the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Agreement constitutes nonqualified deferred compensation (within the meaning of Section 409A of the Code), (i) any such expense reimbursement shall be made by the Company no later than the last day of the taxable year following the taxable year in which such expense was incurred by Executive, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided, that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect.

          (d) While the payments and benefits provided hereunder are intended to be structured in a manner to avoid the implication of any penalty taxes under Section 409A of the Code, in no event whatsoever shall the Company or any member of the Company Group be liable for any additional tax, interest, or penalties that may be imposed on Executive as a result of Section 409A of the Code or any damages for failing to comply with Section 409A of the Code (other than for withholding obligations or other obligations applicable to employers, if any, under Section 409A of the Code).

          Section 14. Successors and Assigns; No Third-Party Beneficiaries.

          (a) The Company. This Agreement shall inure to the benefit of the Company and its respective successors and assigns. Neither this Agreement nor any of the rights, obligations, or interests arising hereunder may be assigned by the Company to a Person (other than another member of the Company Group, or its or their respective successors) without Executive’s prior written consent (which shall not be unreasonably withheld, delayed, or conditioned); provided, however, that in the event of a sale of all or substantially all of the assets of the Company, the Company may provide that this Agreement will be assigned to, and assumed by, the acquiror of such assets, it being agreed that in such circumstances, Executive’s consent will not be required in connection therewith.

          (b) Executive. Executive’s rights and obligations under this Agreement shall not be transferable by Executive by assignment or otherwise, without the prior written consent of the Company; provided, however, upon Executive’s death, all amounts then payable to Executive hereunder shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee, or if there be no such designee, to Executive’s estate.

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          (c) No Third-Party Beneficiaries. Except as otherwise set forth in Section 8(b) or Section 14(b) hereof, nothing expressed or referred to in this Agreement will be construed to give any Person other than the Company, the other members of the Company Group, and Executive any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement.

          Section 15. Waiver and Amendments.

          Any waiver, alteration, amendment, or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by each of the parties hereto; provided, however, that any such waiver, alteration, amendment, or modification must be consented to on the Company’s behalf by the Board. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.

          Section 16. Severability.

          If any covenants or such other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction, (a) the remaining terms and provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision hereof shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision hereof.

          Section 17. Governing Law and Jurisdiction.

          THIS AGREEMENT IS GOVERNED BY AND IS TO BE CONSTRUED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD TO CONFLICT OF LAWS RULES. ANY DISPUTE OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR CLAIM OF BREACH HEREOF SHALL BE BROUGHT EXCLUSIVELY IN FEDERAL COURT IN THE STATE OF NORTH CAROLINA. BY EXECUTION OF THE AGREEMENT, THE PARTIES HERETO, AND THEIR RESPECTIVE AFFILIATES, CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURT, AND WAIVE ANY RIGHT TO CHALLENGE JURISDICTION OR VENUE IN SUCH COURT WITH REGARD TO ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THE AGREEMENT. EACH PARTY TO THIS AGREEMENT ALSO HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THIS AGREEMENT.

          Section 18. Notices.

          (a) Place of Delivery. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for whom or which it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided; provided, that unless and until some other address be so designated, all notices and communications by Executive to the Company

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shall be mailed or delivered to the Company at its principal executive office, Attention: General Counsel, and all notices and communications by the Company to Executive may be given to Executive personally or may be mailed to Executive at Executive’s last known address, as reflected in the Company’s records.

          (b) Date of Delivery. Any notice so addressed shall be deemed to be given (i) if delivered by hand, on the date of such delivery, (ii) if mailed by courier or by overnight mail, on the first business day following the date of such mailing, and (iii) if mailed by registered or certified mail, on the third business day after the date of such mailing.

          Section 19. Section Headings.

          The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof or affect the meaning or interpretation of this Agreement or of any term or provision hereof.

          Section 20. Entire Agreement.

          This Agreement, together with any exhibits attached hereto, constitutes the entire understanding and agreement of the parties hereto regarding the employment of Executive. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings, and agreements between the parties relating to the subject matter of this Agreement.

          Section 21. Survival of Operative Sections.

          Upon any termination of Executive’s employment, the provisions of Section 8 through Section 22 of this Agreement (together with any related definitions set forth in Section 1 hereof) shall survive to the extent necessary to give effect to the provisions thereof.

          Section 22. Counterparts.

          This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

*            *            *
[Signatures to appear on the following page.]

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

FAIRPOINT COMMUNICATIONS, INC.
	/s/ Paul H. Sunu
	By:	Paul H. Sunu
	Title:	Chief Executive Officer
EXECUTIVE
/s/ Kathleen McLean
Kathleen McLean

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CONFIDENTIALITY, NON-INTERFERENCE, AND INVENTION ASSIGNMENT AGREEMENT

          In consideration of FairPoint Communications, Inc., a Delaware corporation (the “Company”), providing me with an employment agreement of even date herewith, and my receipt of the compensation now and hereafter paid to me by the Company, including the additional benefits and compensation provided to me under my employment agreement, I agree to the following:

          Section 1. Confidential Information.

          (a) Company Group Information. I acknowledge that, during the course of my employment, I will have access to information about the Company and its direct and indirect subsidiaries and affiliates (collectively, the “Company Group”) and that my employment with the Company shall bring me into close contact with confidential and proprietary information of the Company Group. In recognition of the foregoing, I agree, at all times during the term of my employment with the Company and for the three (3) year period following my termination of my employment for any reason, to hold in confidence, and not to use, except for the benefit of the Company Group, or to disclose to any person, firm, corporation, or other entity without written authorization of the Company, any Confidential Information that I obtain or create. I understand that “Confidential Information” means information that the Company Group has developed, acquired, created, compiled, discovered, or owned or will develop, acquire, create, compile, discover, or own, that has value in or to the business of the Company Group that is not generally known and that the Company wishes to maintain as confidential. I understand that Confidential Information includes, but is not limited to, any and all non-public information that relates to the actual or anticipated business and/or products, research, or development of the Company, or to the Company’s technical data, trade secrets, or know-how, including, but not limited to, research, product plans, or other information regarding the Company’s products or services and markets, customer lists, and customers (including, but not limited to, customers of the Company on whom I called or with whom I may become acquainted during the term of my employment), software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances, and other business information disclosed by the Company either directly or indirectly in writing, orally, or by drawings or inspection of premises, parts, equipment, or other Company property. Notwithstanding the foregoing, Confidential Information shall not include (i) any of the foregoing items that have become publicly known through no unauthorized disclosure by me or others who were under confidentiality obligations as to the item or items involved, (ii) any information that I am required to disclose to, or by, any governmental or judicial authority, (iii) any information known to me prior to my employment with the Company, other than information acquired in preparation for my service to the Company, or (iv) any information developed independently by me that does not relate to the business of the Company Group; provided, however, that in the event of such requirement to disclose I will give the Company prompt written notice thereof so that the Company Group may seek an appropriate protective order and/or waive in writing compliance with the confidentiality provisions of this Confidentiality, Non-Interference, and Invention Assignment Agreement (the “Non-Interference Agreement”).

          (b) Former Employer Information. I represent that my performance of all of the terms of this Non-Interference Agreement as an employee of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge, or data acquired by me in confidence or trust prior or subsequent to the commencement of my employment with the Company, and I will not disclose to any member of the Company Group, or induce any member of the Company Group to use, any developments, or confidential or proprietary information or material I may have obtained in connection with employment with any prior employer in violation of a confidentiality agreement, nondisclosure agreement, or similar agreement with such prior employer.

          Section 2. Developments.

          (a) Developments Retained and Licensed. If, during any period during which I perform or performed services for the Company Group (the “Assignment Period”), whether as an officer, employee, director, independent contractor, consultant, or agent, or in any other capacity, I incorporate (or have incorporated) into a Company Group product or process any development, original work of authorship, improvement, or trade secret that I created or owned prior to the commencement of my employment or in which I have an interest (collectively referred to as “Prior Developments”), I hereby grant the Company, and the Company Group shall have, a non-exclusive, royalty-free, irrevocable, perpetual, transferable worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell, and otherwise distribute such Prior Development as part of or in connection with such product or process.

          (b) Assignment of Developments. I agree that I will, without additional compensation, promptly make full written disclosure to the Company, and will hold in trust for the sole right and benefit of the Company all developments, original works of authorship, inventions, concepts, know-how, improvements, trade secrets, and similar proprietary rights, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or have solely or jointly conceived or developed or reduced to practice, or have caused or may cause to be conceived or developed or reduced to practice, during the Assignment Period, whether or not during regular working hours, provided they either (i) relate at the time of conception, development or reduction to practice to the business of any member of the Company Group, or the actual or anticipated research or development of any member of the Company Group; (ii) result from or relate to any work performed for any member of the Company Group; or (iii) are developed through the use of equipment, supplies, or facilities of any member of the Company Group, or any Confidential Information, or in consultation with personnel of any member of the Company Group (collectively referred to as “Developments”). I further acknowledge that all Developments made by me (solely or jointly with others) within the scope of and during the Assignment Period are “works made for hire” (to the greatest extent permitted by applicable law) for which I am, in part, compensated by my salary, unless regulated otherwise by law, but that, in the event any such Development is deemed not to be a work made for hire, I hereby assign to the Company, or its designee, all my right, title, and interest throughout the world in and to any such Development.

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          (c) Maintenance of Records. I agree to keep and maintain adequate and current written records of all Developments made by me (solely or jointly with others) during the Assignment Period. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, and any other format. The records will be available to and remain the sole property of the Company Group at all times. I agree not to remove such records from the Company’s place of business except as expressly permitted by Company Group policy, which may, from time to time, be revised at the sole election of the Company Group for the purpose of furthering the business of the Company Group.

          (d) Intellectual Property Rights. I agree to assist the Company, or its designee, at the Company’s expense, in every way to secure the rights of the Company Group in the Developments and any copyrights, patents, trademarks, service marks, database rights, domain names, mask work rights, moral rights, and other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments that the Company shall deem necessary in order to apply for, obtain, maintain, and transfer such rights and in order to assign and convey to the Company Group the sole and exclusive right, title, and interest in and to such Developments, and any intellectual property and other proprietary rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of the Assignment Period until the expiration of the last such intellectual property right to expire in any country of the world; provided, however, the Company shall reimburse me for my reasonable expenses incurred in connection with carrying out the foregoing obligation. If the Company is unable because of my mental or physical incapacity or unavailability for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Developments or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact to act for and in my behalf and stead to execute and file any such applications or records and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance, and transfer of letters patent or registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, that I now or hereafter have for past, present, or future infringement of any and all proprietary rights assigned to the Company.

          Section 3. Returning Company Group Documents.

          I agree that, at the time of termination of my employment with the Company for any reason, I will deliver to the Company (and will not keep in my possession, recreate, or deliver to anyone else) any and all Confidential Information and all other documents, materials, information, and property developed by me pursuant to my employment or otherwise belonging to the Company. I agree further that any property situated on the Company’s premises and owned by the Company (or any other member of the Company Group), including disks and other storage media, filing cabinets, and other work areas, is subject to inspection by personnel of any member of the Company Group at any time with or without notice.

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          Section 4. Disclosure of Agreement.

          As long as it remains in effect, I will disclose the existence of this Non-Interference Agreement to any prospective employer, partner, co-venturer, investor, or lender prior to entering into an employment, partnership, or other business relationship with such person or entity.

          Section 5. Restrictions on Interfering.

          (a) Non-Competition. During the period of my employment with the Company (the “Employment Period”) and the Post-Termination Non-Compete Period, I shall not, directly or indirectly, individually or on behalf of any person, company, enterprise, or entity, or as a sole proprietor, partner, stockholder, director, officer, principal, agent, or executive, or in any other capacity or relationship, engage in any Competitive Activities.

          (b) Non-Interference. During the Employment Period and the Post-Termination Non-Interference Period, I shall not, directly or indirectly for my own account or for the account of any other individual or entity, engage in Interfering Activities; provided, however, that I shall not be deemed to violate this subsection (b) to the extent that any employee of any subsequent employer of mine, in the ordinary course of business, conducts any activity described in subsection (c)(iii)(C) below as to any Business Relation, provided that I have not directed or instructed any such employee (either personally or through another) to contact any such Business Relation.

          (c) Definitions. For purposes of this Non-Interference Agreement :

          (i) “Business Relation” shall mean any current or prospective client, customer, licensee, or other business relation of the Company Group, or any such relation that was a client, customer, licensee, or other business relation within the six (6) month period prior to the expiration of the Employment Period, in each case, to whom I provided services, or with whom I transacted business, or whose identity became known to me in connection with my relationship with or employment by the Company and is not publicly known.

          (ii) “Competitive Activities” shall mean telecommunication services provided by a rural exchange carrier business which has substantial business operations in the state of Florida, Maine, New Hampshire, North Carolina, or Vermont.

          (iii) “Interfering Activities” shall mean (A) encouraging, soliciting, or inducing, or in any manner attempting to encourage, solicit, or induce, any Person employed by, or providing consulting services to, any member of the Company Group to terminate such Person’s employment or services (or in the case of a consultant, materially reducing such services) with the Company Group; (B) hiring any individual who was employed by the Company Group within the six (6) month period prior to the date of such hiring; or (C) encouraging, soliciting, or inducing, or in any manner attempting to encourage, solicit, or induce, any Business Relation to cease doing business with or reduce the amount of business conducted with the Company Group, or in any way

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interfering with the relationship between any such Business Relation and the Company Group.

          (iv) “Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust (charitable or non-charitable), unincorporated organization, or other form of business entity.

          (v) “Post-Termination Non-Compete Period” shall mean the period commencing on the date of the termination of the Employment Period for any reason and ending on the twelve (12) month anniversary of such date of termination.

          (vi) “Post-Termination Non-Interference Period” shall mean the period commencing on the date of the termination of the Employment Period for any reason and ending on the twelve (12) month anniversary of such date of termination.

          (d) Non-Disparagement. I agree that during the Employment Period, and at all times thereafter, I will not make any disparaging or defamatory comments regarding any member of the Company Group or its respective current or former directors, officers, or employees in any respect or make any comments concerning any aspect of my relationship with any member of the Company Group or any conduct or events which precipitated any termination of my employment from any member of the Company Group. However, my obligations under this subparagraph (d) shall not apply to disclosures required by applicable law, regulation, or order of a court or governmental agency.

          Section 6. Reasonableness of Restrictions.

          I acknowledge and recognize the highly competitive nature of the Company’s business, that access to Confidential Information renders me special and unique within the Company’s industry, and that I will have the opportunity to develop substantial relationships with existing and prospective clients, accounts, customers, consultants, contractors, investors, and strategic partners of the Company Group during the course of and as a result of my employment with the Company. In light of the foregoing, I recognize and acknowledge that the restrictions and limitations set forth in this Non-Interference Agreement are reasonable and valid in geographical and temporal scope and in all other respects and are essential to protect the value of the business and assets of the Company Group. I acknowledge further that the restrictions and limitations set forth in this Non-Interference Agreement will not materially interfere with my ability to earn a living following the termination of my employment with the Company and that my ability to earn a livelihood without violating such restrictions is a material condition to my employment with the Company.

          Section 7. Independence; Severability; Blue Pencil.

          Each of the rights enumerated in this Non-Interference Agreement shall be independent of the others and shall be in addition to and not in lieu of any other rights and remedies available to the Company Group at law or in equity. If any of the provisions of this Non-Interference Agreement or any part of any of them is hereafter construed or adjudicated to

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be invalid or unenforceable, the same shall not affect the remainder of this Non-Interference Agreement, which shall be given full effect without regard to the invalid portions. If any of the covenants contained herein are held to be invalid or unenforceable because of the duration of such provisions or the area or scope covered thereby, I agree that the court making such determination shall have the power to reduce the duration, scope, and/or area of such provision to the maximum and/or broadest duration, scope, and/or area permissible by law, and in its reduced form said provision shall then be enforceable.

          Section 8. Injunctive Relief.

          I expressly acknowledge that any breach or threatened breach of any of the terms and/or conditions set forth in this Non-Interference Agreement may result in irreparable injury to the members of the Company Group. Therefore, I hereby agree that, in addition to any other remedy that may be available to the Company, any member of the Company Group shall be entitled to seek injunctive relief, specific performance, or other equitable relief by a court of appropriate jurisdiction in the event of any breach or threatened breach of the terms of this Non-Interference Agreement without the necessity of proving irreparable harm or injury as a result of such breach or threatened breach. Notwithstanding any other provision to the contrary, I acknowledge and agree that the Post-Termination Non-Compete Period, or Post-Termination Non-Interference Period, as applicable, shall be tolled during any period of violation of any of the covenants in Section 5 hereof.

          Section 9. Cooperation.

          I agree that, following any termination of my employment, I will continue to provide reasonable cooperation to the Company and/or any other member of the Company Group and its or their respective counsel in connection with any investigation, administrative proceeding, or litigation relating to any matter that occurred during my employment in which I was involved or of which I have knowledge. As a condition of such cooperation, the Company shall reimburse me for reasonable out-of-pocket expenses incurred at the request of the Company with respect to my compliance with this paragraph. I also agree that, in the event that I am subpoenaed by any person or entity (including, but not limited to, any government agency) to give testimony or provide documents (in a deposition, court proceeding, or otherwise) that in any way relates to my employment by the Company and/or any other member of the Company Group, I will give prompt notice of such request to the Company and will make no disclosure until the Company and/or the other member of the Company Group has had a reasonable opportunity to contest the right of the requesting person or entity to such disclosure.

          Section 10. General Provisions.

          (a) Governing Law and Jurisdiction. THIS NON-INTERFERENCE AGREEMENT IS GOVERNED BY AND IS TO BE CONSTRUED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD TO CONFLICT OF LAWS RULES. ANY DISPUTE OR CLAIM ARISING OUT OF OR RELATING TO THIS NON-INTERFERENCE AGREEMENT OR CLAIM OF BREACH HEREOF SHALL BE BROUGHT EXCLUSIVELY IN FEDERAL COURT IN THE STATE OF NORTH CAROLINA. BY

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          EXECUTION OF THE NON-INTERFERENCE AGREEMENT, THE PARTIES HERETO, AND THEIR RESPECTIVE AFFILIATES, CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURT, AND WAIVE ANY RIGHT TO CHALLENGE JURISDICTION OR VENUE IN SUCH COURT WITH REGARD TO ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THE NON-INTERFERENCE AGREEMENT. EACH PARTY TO THIS NON-INTERFERENCE AGREEMENT ALSO HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THIS NON-INTERFERENCE AGREEMENT.

          (b) Entire Agreement. This Non-Interference Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Non-Interference Agreement, nor any waiver of any rights under this Non-Interference Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights, or compensation will not affect the validity or scope of this Non-Interference Agreement.

          (c) No Right of Continued Employment. I acknowledge and agree that nothing contained herein shall be construed as granting me any right to continued employment by the Company, and the right of the Company to terminate my employment at any time and for any reason, with or without cause, is specifically reserved.

          (d) Successors and Assigns. This Non-Interference Agreement will be binding upon my heirs, executors, administrators, and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. I expressly acknowledge and agree that this Non-Interference Agreement may be assigned by the Company without my consent to any other member of the Company Group as well as any purchaser of all or substantially all of the assets or stock of the Company, whether by purchase, merger, or other similar corporate transaction, provided that the license granted pursuant to Section 2(a) may be assigned to any third party by the Company without my consent.

          (e) Survival. The provisions of this Non-Interference Agreement shall survive the termination of my employment with the Company and/or the assignment of this Non-Interference Agreement by the Company to any successor in interest or other assignee.

*              *              *

          I, Kathleen McLean, have executed this Confidentiality, Non-Interference, and Invention Assignment Agreement on the respective date set forth below:

Date: July 1, 2011	/s/ Kathleen McLean
	(Signature)

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EX-10.27

Exhibit 10.27

EMPLOYMENT AGREEMENT

          This EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of this 1st day of July, 2011 (the “Commencement Date”) by and between FairPoint Communications, Inc. (the “Company”), a Delaware corporation, and Kenneth W. Amburn (the “Executive”).

W I T N E S S E T H :

          WHEREAS, the Company desires to employ Executive and to enter into this Agreement embodying the terms of such employment, and Executive desires to enter into this Agreement and to accept such employment, subject to the terms and provisions of this Agreement.

          NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, the Company and Executive hereby agree as follows:

          Section 1. Definitions.

          (a) “Accrued Obligations” shall mean (i) all accrued but unpaid Base Salary through the date of termination of Executive’s employment, (ii) any unpaid or unreimbursed expenses incurred in accordance with Section 7 hereof, (iii) any benefits provided under the Company’s employee benefit plans upon a termination of employment, in accordance with the terms contained therein, and (iv) any amounts payable under the FairPoint Communications, Inc. 2010 Long Term Incentive Plan (“LTIP”), in accordance with the terms contained therein.

          (b) “Cause” shall mean (i) Executive’s act(s) of gross negligence or willful misconduct in the course of Executive’s employment hereunder, (ii) willful failure or refusal by Executive to perform in any material respect his duties or responsibilities, (iii) misappropriation (or attempted misappropriation) by Executive of any assets or business opportunities of the Company or any other member of the Company Group, (iv) embezzlement or fraud committed (or attempted) by Executive, or at his direction, (v) Executive’s conviction of, indictment for, or pleading “guilty” or “ no contest” to, (x) a felony or (y) any other criminal charge that has, or could be reasonably expected to have, an adverse impact on the performance of Executive’s duties to the Company or any other member of the Company Group or otherwise result in material injury to the reputation or business of the Company or any other member of the Company Group, (vi) any material violation by Executive of the policies of the Company, including but not limited to those relating to sexual harassment or business conduct, and those otherwise set forth in the manuals or statements of policy of the Company, which violation has a material adverse effect on the Company, or (vii) Executive’s material breach of this Agreement or material breach of the Non-Interference Agreement.

          (c) “Change in Control” shall have the same meaning as defined in the LTIP, as in effect on the date hereof; provided, however, that there shall be no provision for any threatened or anticipated Change in Control that does not actually occur.

          (d) “Disability” shall mean any physical or mental disability or infirmity of Executive that prevents the performance of Executive’s duties for a period of (i) ninety (90) consecutive days or (ii) one hundred twenty (120) non-consecutive days during any twelve (12) month period. Any question as to the existence, extent, or potentiality of Executive’s Disability upon which Executive and the Company cannot agree shall be determined by a qualified, independent physician selected by the Company and approved by Executive (which approval shall not be unreasonably withheld). The determination of any such physician shall be final and conclusive for all purposes of this Agreement.

          (e) “Good Reason” shall mean, without Executive’s consent, (i) a material reduction in Base Salary set forth in Section 4(a) hereof or Annual Bonus opportunity set forth in Section 4(b) hereof, (ii) the relocation of Executive’s principal place of employment (as provided in Section 3(b) hereof) more than fifty (50) miles from its current location, or (iii) any other material breach of a provision of this Agreement by the Company (other than a provision that is covered by clause (i) or (ii) above). Executive acknowledges and agrees that his exclusive remedy in the event of any breach of this Agreement shall be to assert Good Reason pursuant to the terms and conditions of Section 8(e) hereof. Notwithstanding the foregoing, during the Term of Employment, in the event that the Board reasonably believes that Executive may have engaged in conduct that could constitute Cause hereunder, the Board may, in its sole and absolute discretion, suspend Executive from performing his duties hereunder, and in no event shall any such suspension constitute an event pursuant to which Executive may terminate employment with Good Reason or otherwise constitute a breach hereunder; provided, that no such suspension shall alter the Company’s obligations under this Agreement during such period of suspension.

          (f) “Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust (charitable or non-charitable), unincorporated organization, or other form of business entity.

          Section 2. Acceptance and Term of Employment.

          The Company agrees to employ Executive, and Executive agrees to serve the Company, on the terms and conditions set forth herein. The term of employment (the “Term of Employment”) shall commence on the Commencement Date and shall continue during the period ending on the close of business of the three (3) year anniversary of the Commencement Date, unless terminated sooner as provided in Section 8 or unless the Company has provided Executive with notice of its intention to renew the Term of Employment for a specific period of time, such notice to be given not less than one hundred twenty (120) days prior to the expiration of the three (3) year anniversary of the Commencement Date. Following the three year Term of Employment (or the applicable extension term, if any), the Executive shall continue on an at will basis until such time as the Company provides to Executive a written notice of termination pursuant to the provisions of Section 18 hereof.

          Section 3. Position, Duties, and Responsibilities; Place of Performance.

          (a) Position, Duties and Responsibilities. During the Term of Employment, Executive shall be employed and serve as Executive Vice President of Engineering, Operations

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and Network Planning of the Company (with such title subject to change from time to time as determined by the Board of Directors of the Company (the “Board”) together with such other position or positions consistent with Executive’s title as the Chief Executive Officer of the Company (the “CEO”) shall specify from time to time), and shall have such duties and responsibilities commensurate with such title. Executive also agrees to serve, at the request of the CEO, as an officer of any other direct or indirect subsidiary of the Company (each such subsidiary being, together with the Company, a member of the “Company Group”), in each case without additional compensation.

          (b) Performance. Executive shall devote his full business time, attention, skill, and best efforts to the performance of his duties under this Agreement and shall not engage in any other business or occupation during the Term of Employment, including, without limitation, any activity that (x) conflicts with the interests of the Company or any other member of the Company Group, (y) interferes with the proper and efficient performance of Executive’s duties for the Company, or (z) interferes with Executive’s exercise of judgment in the Company’s best interests. Notwithstanding the foregoing, nothing herein shall preclude Executive from (i) serving, with the prior written consent of the CEO, as a member of the boards of directors or advisory boards (or their equivalents in the case of a non-corporate entity) of non-competing businesses and charitable organizations, (ii) engaging in charitable activities and community affairs, and (iii) managing personal investments and affairs; provided, however, that the activities set out in clauses (i), (ii) and (iii) shall be limited by Executive so as not to interfere, individually or in the aggregate, with the performance of his duties and responsibilities hereunder. Executive’s principal place of employment shall be in Charlotte, North Carolina, although Executive understands and agrees that he may be required to travel from time to time for business reasons.

          Section 4. Compensation.

          During the Term of Employment, Executive shall be entitled to the following compensation:

          (a) Base Salary. Executive shall be paid an annualized base salary (the “Base Salary”), payable in accordance with the regular payroll practices of the Company, of not less than Two Hundred Seventy-Five Thousand Dollars ($275,000), with increases, if any, as may be approved in writing by the Compensation Committee of the Board of Directors (the “Compensation Committee”).

          (b) Annual Bonus. Executive shall be eligible for an annual incentive bonus award (the “Annual Bonus”) through participation in the Company’s Annual Incentive Plan in respect of each fiscal year during the Term of Employment, with the actual Annual Bonus payable being based upon the level of achievement of annual Company and individual performance objectives for such fiscal year, as determined by the Compensation Committee and communicated to Executive. The Annual Bonus shall be paid to Executive at the same time as annual bonuses are generally payable to other senior executives of the Company subject to Executive’s continuous employment through the payment date.

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          (c) Other Plans. Executive shall be eligible for consideration by the Compensation Committee to participate in the benefit and other plans made available generally to senior executives of the Company, including but not limited to the LTIP, subject to the terms and conditions as may be established from time to time by the Compensation Committee and communicated to Executive. Upon the occurrence of a Change in Control, all of Executive’s unvested benefits under the LTIP shall be accelerated and shall vest in full.

          (d) Indemnification. The Company shall indemnify Executive and hold Executive harmless in connection with the defense of any lawsuit or other claim to which he is made a party by reason of being an officer or employee of the Company, to the fullest extent permitted by the laws of the State of Delaware, as in effect at the time of the subject act or omission; provided that any settlement, consent to judgment, or similar action taken by Executive without the prior written consent of the Company in respect of any such lawsuit or other claim shall not be subject to indemnification hereunder.

          Section 5. Employee Benefits.

          During the Term of Employment, Executive shall be entitled to participate in health, insurance, retirement, and other benefits provided generally to similarly situated employees of the Company. Executive shall also be entitled to the same number of holidays, vacation days, and sick days, as well as any other benefits, in each case as are generally allowed to similarly situated employees of the Company in accordance with the Company policy as in effect from time to time. Nothing contained herein shall be construed to limit the Company’s ability to amend, suspend, or terminate any employee benefit plan or policy at any time without providing Executive notice, and the right to do so is expressly reserved.

          Section 6. Key-Man Insurance.

          At any time during the Term of Employment, the Company shall have the right to insure the life of Executive for the sole benefit of the Company, in such amounts, and with such terms, as it may determine. All premiums payable thereon shall be the obligation of the Company. Executive shall have no interest in any such policy, but agrees to cooperate with the Company in procuring such insurance by submitting to physical examinations, supplying all information required by the insurance company, and executing all necessary documents, provided that no financial obligation is imposed on Executive by any such documents.

          Section 7. Reimbursement of Business Expenses.

          Executive is authorized to incur reasonable business expenses in carrying out his duties and responsibilities under this Agreement, and the Company shall promptly reimburse his for all such reasonable business expenses, subject to documentation in accordance with the Company’s policy, as in effect from time to time.

          Section 8. Termination of Employment.

          (a) General. The Term of Employment shall terminate upon the earliest to occur of (i) Executive’s death, (ii) a termination by reason of a Disability, (iii) a termination by the Company with or without Cause, (iv) a termination by Executive with or without Good

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Reason, and (v) delivery by the Company to Executive of a termination notice at any time subsequent to the close of business on the last day of the Term of Employment. Upon any termination of Executive’s employment for any reason, except as may otherwise be requested by the Company in writing and agreed upon in writing by Executive, Executive shall resign from any and all directorships, committee memberships, and any other positions Executive holds with the Company or any other member of the Company Group. Notwithstanding anything herein to the contrary, the payment (or commencement of a series of payments) hereunder of any nonqualified deferred compensation (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the “Code”)) upon a termination of employment shall be delayed until such time as Executive has also undergone a “separation from service” as defined in Treas. Reg. 1.409A-1(h), at which time such nonqualified deferred compensation (calculated as of the date of Executive’s termination of employment hereunder) shall be paid (or commence to be paid) to Executive on the schedule set forth in this Section 8 as if Executive had undergone such termination of employment (under the same circumstances) on the date of his ultimate “separation from service.”

          (b) Termination Due to Death or Disability. Executive’s employment shall terminate automatically upon his death. The Company may terminate Executive’s employment immediately upon the occurrence of a Disability, such termination to be effective upon Executive’s receipt of written notice of such termination. Upon Executive’s death or in the event that Executive’s employment is terminated due to his Disability, Executive or his estate or his beneficiaries, as the case may be, shall be entitled to:

          (i) The Accrued Obligations;

          (ii) Any unpaid Annual Bonus in respect of any completed fiscal year that has ended prior to the date of such termination, which amount shall be paid at such time annual bonuses are paid to other senior executives of the Company, but in no event later than the date that is 2¹/2 months following the last day of the fiscal year in which such termination occurred.

Following Executive’s death or a termination of Executive’s employment by reason of a Disability, except as set forth in this Section 8(b), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

          (c) Termination by the Company with Cause.

          (i) The Company may terminate Executive’s employment at any time with Cause, effective upon Executive’s receipt of written notice of such termination; provided, however, that with respect to any Cause termination relying on clause (ii) of the definition of Cause set forth in Section 1(b) hereof, to the extent that such act or acts or failure or failures to act are curable, Executive shall be given not less than ten (10) days’ written notice by the Board of its intention to terminate his with Cause, such notice to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination with Cause is based, and such termination shall be effective at the expiration of such ten (10) day notice period unless Executive has

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fully cured such act or acts or failure or failures to act that give rise to Cause during such period.

               (ii) In the event that the Company terminates Executive’s employment with Cause, he shall be entitled only to the Accrued Obligations. Following such termination of Executive’s employment with Cause, except as set forth in this Section 8(c)(ii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

          (d) Termination by the Company without Cause or upon Delivery of a Termination Notice from the Company to the Executive. The Company may terminate Executive’s employment at any time without Cause, effective upon Executive’s receipt of written notice of such termination, or by delivery to Executive of a written notice of termination in accordance with the provisions of Section 2 above.

               (i) In the event that Executive’s employment is terminated by the Company without Cause (other than due to death or Disability) or upon the Company’s delivery of a termination notice, in either case prior to the expiration of the Term of Employment (for example, the termination must be effected or the termination notice must be delivered to Executive prior to the expiration of three (3) years from the Commencement Date), Executive shall be entitled to:

(A)	The Accrued Obligations;
(B)	Any unpaid Annual Bonus in respect of any completed fiscal year that has ended prior to the date of such termination, which amount shall be paid at such time annual bonuses are paid to other senior executives of the Company, but in no event later than the date that is 21/2 months following the last day of the fiscal year in which such termination occurred;
(C)	An amount equal to the sum of:

(x)	two (2) times the amount of Executive’s then-current Base Salary;
(y)	two (2) times the amount of Executive’s average Annual Bonus where such average is determined by reference to the actual Annual Bonus paid to Executive for the immediately two (2) preceding fiscal years,
(z)	the cost of continued health and disability insurance coverage for Executive and his covered dependents during the twenty four (24) months following such termination, based on the monthly cost of continuation coverage under COBRA as of the date of termination, as applicable, under the applicable Company benefit plans, such amounts to be

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paid in accordance with the Company’s regular payroll practices; and

(D) if any such termination is within six (6) months before or six (6) months after a Change in Control, the amount payable under Section 8(d)(i)(C)(y) shall be adjusted to the greater of (A) the amount payable under Section 8(d)(i)(C)(y), or (B) two (2) times the amount of Executive’s target Annual Bonus for the current fiscal year. To the extent that the amount payable under this Section 8(d)(i)(D) is greater than the amount payable under Section 8(d)(i)(C), the deficiency shall be paid at the effective time of the occurrence of a Change in Control.

          (ii) In the event that Executive’s employment is terminated by the Company without Cause (other than due to death or Disability) or upon the Company’s delivery of a termination notice, in either case after the expiration of the Term of Employment (for example, the termination is effected or the termination notice is delivered to Executive subsequent to the expiration of three (3) years from the Commencement Date, herein an “At Will Termination”), Executive shall be entitled to the Accrued Obligations only; provided, however, if the At Will Termination is effected within six (6) months prior to a Change in Control, Executive shall be entitled to each of the payments and benefits described in clauses (B), (C) and (D) above.

Notwithstanding the foregoing, the payments and benefits described in clauses (B), (C) and (D) above shall immediately terminate, and the Company shall have no further obligations to Executive with respect thereto, in the event that Executive breaches any provision of the Non-Interference Agreement.

Following such termination of Executive’s employment by the Company without Cause or upon the Company’s delivery to Executive of a termination notice, except as set forth in this Section 8(d), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

For the avoidance of doubt, Executive’s sole and exclusive remedy upon a termination of employment by the Company without Cause or upon the expiration of the Term of Employment, in either case following the Company’s delivery to Executive of a termination notice which termination is effected or where the termination notice is delivered prior to the expiration of the date that is three (3) years subsequent to the Commencement Date, shall be receipt of the Severance Benefits and the Accrued Obligations.

          (e) Termination by Executive with Good Reason. Executive may terminate his employment with Good Reason by providing the Company ten (10) days’ written notice setting forth in reasonable specificity the event that constitutes Good Reason, which written notice, to be effective, must be provided to the Company within sixty (60) days of the occurrence of such event. During such ten (10) day notice period, the Company shall have a cure right (if curable), and if not cured within such period, Executive’s termination will be effective upon the expiration of such cure period. Executive shall be entitled to the same payments and benefits as

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provided in Section 8(d) hereof for a termination by the Company without Cause, subject to the same conditions on payment and benefits as described in Section 8(d) hereof; provided, however, that Executive shall also be entitled to accelerated vesting of the next tranche of benefits payable under the LTIP. Following such termination of Executive’s employment by Executive with Good Reason, except as set forth in this Section 8(e), Executive shall have no further rights to any compensation or any other benefits under this Agreement. For the avoidance of doubt, Executive’s sole and exclusive remedy upon a termination of employment with Good Reason shall be receipt of the amounts as set forth in this Section 8(e).

     (f) Termination by Executive without Good Reason or upon Delivery by Executive to Company of a Termination Notice. Executive may terminate his employment without Good Reason by providing the Company thirty (30) days’ written notice of such termination or by delivery of a written termination notice in accordance with the provisions of Section 2 above. In the event of a termination of employment by Executive under this Section 8(f), Executive shall be entitled only to the Accrued Obligations. In the event of termination of Executive’s employment without Good Reason, the Company may, in its sole and absolute discretion, by written notice accelerate such date of termination without changing the characterization of such termination as a termination by Executive without Good Reason. Following such termination of Executive’s employment by Executive without Good Reason or upon Executive’s delivery to Company of a termination notice, except as set forth in this Section 8(f), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

          (g) Release. Notwithstanding any provision herein to the contrary, the payment of any amount or provision of any benefit pursuant to subsection (b), (d), or (e) of this Section 8 (other than the Accrued Obligations) (collectively, the “Severance Benefits”) shall be conditioned upon Executive’s execution, delivery to the Company, and non-revocation of a release of claims (under a release of claims form, the form and content of which are acceptable to the Company, and the expiration of any revocation period contained in such release of claims) within sixty (60) days following the date of Executive’s termination of employment hereunder. If Executive fails to execute the release of claims in such a timely manner so as to permit any revocation period to expire prior to the end of such sixty (60) day period, or timely revokes his acceptance of such release following its execution, Executive shall not be entitled to any of the Severance Benefits. Further, to the extent that any of the Severance Benefits constitutes “nonqualified deferred compensation” for purposes of Section 409A of the Code, any payment of any amount or provision of any benefit otherwise scheduled to occur prior to the sixtieth (60^th) day following the date of Executive’s termination of employment hereunder, but for the condition on executing the release of claims as set forth herein, shall not be made until the first regularly scheduled payroll date following such sixtieth (60^th) day, after which any remaining Severance Benefits shall thereafter be provided to Executive according to the applicable schedule set forth herein. For the avoidance of doubt, in the event of a termination due to Executive’s death or Disability, Executive’s obligations herein to execute and not revoke the release of claims may be satisfied on his behalf by his estate or a person having legal power of attorney over his affairs.

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          Section 9. Non-Interference Agreement.

          As a condition to receipt of the benefits set forth under this Agreement, to which Executive acknowledges are incremental to the benefits and compensation available to Executive immediately prior to the Commencement Date, Executive shall have executed and delivered to the Company a non-interference agreement (the “Non-Interference Agreement”) in the form of the Confidentiality, Non-Interference and Invention Assignment Agreement attached hereto as Exhibit A. The parties hereto acknowledge and agree that this Agreement and the Non-Interference Agreement shall be considered separate contracts.

          Section 10. Representations and Warranties of Executive.

          Executive represents and warrants to the Company that:

          (a) Executive is entering into this Agreement voluntarily and that his employment hereunder and compliance with the terms and conditions hereof will not conflict with or result in the breach by his of any agreement to which he is a party or by which he may be bound;

          (b) Executive has not violated, and in connection with his employment with the Company will not violate, any non-solicitation, non-competition, or other similar covenant or agreement of a prior employer by which he is or may be bound; and

          (c) in connection with his employment with the Company, Executive will not use any confidential or proprietary information he may have obtained in connection with employment with any prior employer.

          Section 11. Taxes.

          The Company may withhold from any payments made under this Agreement all applicable taxes, including but not limited to income, employment, and social insurance taxes, as shall be required by law. Executive acknowledges and represents that the Company has not provided any tax advice to his in connection with this Agreement and that he has been advised by the Company to seek tax advice from his own tax advisors regarding this Agreement and payments that may be made to his pursuant to this Agreement, including specifically, the application of the provisions of Section 409A of the Code to such payments.

          Section 12. Mitigation; Company Recovery Rights.

          Executive shall not be required to mitigate the amount of any payment provided pursuant to this Agreement by seeking other employment or otherwise, and the amount of any payment provided for pursuant to this Agreement shall not be reduced by any compensation earned as a result of Executive’s other employment or otherwise. Any payment pursuant to this Agreement shall, however, be subject to any rights the Company may have under Section 304(b) of the Sarbanes-Oxley Act of 2002 or Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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          Section 13. Additional Section 409A Provisions.

          Notwithstanding any provision in this Agreement to the contrary:

          (a) Any payment otherwise required to be made hereunder to Executive at any date as a result of the termination of Executive’s employment shall be delayed for such period of time as may be necessary to meet the requirements of Section 409A(a)(2)(B)(i) of the Code (the “Delay Period”). On the first business day following the expiration of the Delay Period, Executive shall be paid, in a single cash lump sum, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence, and any remaining payments not so delayed shall continue to be paid pursuant to the payment schedule set forth herein.

          (b) Each payment in a series of payments hereunder shall be deemed to be a separate payment for purposes of Section 409A of the Code.

          (c) To the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Agreement constitutes nonqualified deferred compensation (within the meaning of Section 409A of the Code), (i) any such expense reimbursement shall be made by the Company no later than the last day of the taxable year following the taxable year in which such expense was incurred by Executive, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided, that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect.

          (d) While the payments and benefits provided hereunder are intended to be structured in a manner to avoid the implication of any penalty taxes under Section 409A of the Code, in no event whatsoever shall the Company or any member of the Company Group be liable for any additional tax, interest, or penalties that may be imposed on Executive as a result of Section 409A of the Code or any damages for failing to comply with Section 409A of the Code (other than for withholding obligations or other obligations applicable to employers, if any, under Section 409A of the Code).

          Section 14. Successors and Assigns; No Third-Party Beneficiaries.

          (a) The Company. This Agreement shall inure to the benefit of the Company and its respective successors and assigns. Neither this Agreement nor any of the rights, obligations, or interests arising hereunder may be assigned by the Company to a Person (other than another member of the Company Group, or its or their respective successors) without Executive’s prior written consent (which shall not be unreasonably withheld, delayed, or conditioned); provided, however, that in the event of a sale of all or substantially all of the assets of the Company, the Company may provide that this Agreement will be assigned to, and assumed by, the acquiror of such assets, it being agreed that in such circumstances, Executive’s consent will not be required in connection therewith.

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          (b) Executive. Executive’s rights and obligations under this Agreement shall not be transferable by Executive by assignment or otherwise, without the prior written consent of the Company; provided, however, upon Executive’s death, all amounts then payable to Executive hereunder shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee, or if there be no such designee, to Executive’s estate.

          (c) No Third-Party Beneficiaries. Except as otherwise set forth in Section 8(b) or Section 14(b) hereof, nothing expressed or referred to in this Agreement will be construed to give any Person other than the Company, the other members of the Company Group, and Executive any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement.

          Section 15. Waiver and Amendments.

          Any waiver, alteration, amendment, or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by each of the parties hereto; provided, however, that any such waiver, alteration, amendment, or modification must be consented to on the Company’s behalf by the Board. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.

          Section 16. Severability.

          If any covenants or such other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction, (a) the remaining terms and provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision hereof shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision hereof.

          Section 17. Governing Law and Jurisdiction.

          THIS AGREEMENT IS GOVERNED BY AND IS TO BE CONSTRUED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD TO CONFLICT OF LAWS RULES. ANY DISPUTE OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR CLAIM OF BREACH HEREOF SHALL BE BROUGHT EXCLUSIVELY IN FEDERAL COURT IN THE STATE OF NORTH CAROLINA. BY EXECUTION OF THE AGREEMENT, THE PARTIES HERETO, AND THEIR RESPECTIVE AFFILIATES, CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURT, AND WAIVE ANY RIGHT TO CHALLENGE JURISDICTION OR VENUE IN SUCH COURT WITH REGARD TO ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THE AGREEMENT. EACH PARTY TO THIS AGREEMENT ALSO HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THIS AGREEMENT.

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          Section 18. Notices.

          (a) Place of Delivery. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for whom or which it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided; provided, that unless and until some other address be so designated, all notices and communications by Executive to the Company shall be mailed or delivered to the Company at its principal executive office, Attention: General Counsel, and all notices and communications by the Company to Executive may be given to Executive personally or may be mailed to Executive at Executive’s last known address, as reflected in the Company’s records.

          (b) Date of Delivery. Any notice so addressed shall be deemed to be given (i) if delivered by hand, on the date of such delivery, (ii) if mailed by courier or by overnight mail, on the first business day following the date of such mailing, and (iii) if mailed by registered or certified mail, on the third business day after the date of such mailing.

          Section 19. Section Headings.

          The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof or affect the meaning or interpretation of this Agreement or of any term or provision hereof.

          Section 20. Entire Agreement.

          This Agreement, together with any exhibits attached hereto, constitutes the entire understanding and agreement of the parties hereto regarding the employment of Executive. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings, and agreements between the parties relating to the subject matter of this Agreement.

          Section 21. Survival of Operative Sections.

          Upon any termination of Executive’s employment, the provisions of Section 8 through Section 22 of this Agreement (together with any related definitions set forth in Section 1 hereof) shall survive to the extent necessary to give effect to the provisions thereof.

          Section 22. Counterparts.

          This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

*               *                *
[Signatures to appear on the following page.]

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

FAIRPOINT COMMUNICATIONS, INC.
By:	/s/ Paul H. Sunu
	Paul H. Sunu
	Title:	Chief Executive Officer
EXECUTIVE
/s/ Kenneth W. Amburn
Kenneth W. Amburn

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CONFIDENTIALITY, NON-INTERFERENCE, AND INVENTION ASSIGNMENT AGREEMENT

          In consideration of FairPoint Communications, Inc., a Delaware corporation (the “Company”), providing me with an employment agreement of even date herewith, and my receipt of the compensation now and hereafter paid to me by the Company, including the additional benefits and compensation provided to me under my employment agreement, I agree to the following:

          Section 1. Confidential Information.

          (a) Company Group Information. I acknowledge that, during the course of my employment, I will have access to information about the Company and its direct and indirect subsidiaries and affiliates (collectively, the “Company Group”) and that my employment with the Company shall bring me into close contact with confidential and proprietary information of the Company Group. In recognition of the foregoing, I agree, at all times during the term of my employment with the Company and for the three (3) year period following my termination of my employment for any reason, to hold in confidence, and not to use, except for the benefit of the Company Group, or to disclose to any person, firm, corporation, or other entity without written authorization of the Company, any Confidential Information that I obtain or create. I understand that “Confidential Information” means information that the Company Group has developed, acquired, created, compiled, discovered, or owned or will develop, acquire, create, compile, discover, or own, that has value in or to the business of the Company Group that is not generally known and that the Company wishes to maintain as confidential. I understand that Confidential Information includes, but is not limited to, any and all non-public information that relates to the actual or anticipated business and/or products, research, or development of the Company, or to the Company’s technical data, trade secrets, or know-how, including, but not limited to, research, product plans, or other information regarding the Company’s products or services and markets, customer lists, and customers (including, but not limited to, customers of the Company on whom I called or with whom I may become acquainted during the term of my employment), software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances, and other business information disclosed by the Company either directly or indirectly in writing, orally, or by drawings or inspection of premises, parts, equipment, or other Company property. Notwithstanding the foregoing, Confidential Information shall not include (i) any of the foregoing items that have become publicly known through no unauthorized disclosure by me or others who were under confidentiality obligations as to the item or items involved, (ii) any information that I am required to disclose to, or by, any governmental or judicial authority, (iii) any information known to me prior to my employment with the Company, other than information acquired in preparation for my service to the Company, or (iv) any information developed independently by me that does not relate to the business of the Company Group; provided, however, that in the event of such requirement to disclose I will give the Company prompt written notice thereof so that the Company Group may seek an appropriate protective order and/or waive in writing compliance with the confidentiality provisions of this Confidentiality, Non-Interference, and Invention Assignment Agreement (the “Non-Interference Agreement”).

          (b) Former Employer Information. I represent that my performance of all of the terms of this Non-Interference Agreement as an employee of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge, or data acquired by me in confidence or trust prior or subsequent to the commencement of my employment with the Company, and I will not disclose to any member of the Company Group, or induce any member of the Company Group to use, any developments, or confidential or proprietary information or material I may have obtained in connection with employment with any prior employer in violation of a confidentiality agreement, nondisclosure agreement, or similar agreement with such prior employer.

          Section 2. Developments.

          (a) Developments Retained and Licensed. If, during any period during which I perform or performed services for the Company Group (the “Assignment Period”), whether as an officer, employee, director, independent contractor, consultant, or agent, or in any other capacity, I incorporate (or have incorporated) into a Company Group product or process any development, original work of authorship, improvement, or trade secret that I created or owned prior to the commencement of my employment or in which I have an interest (collectively referred to as “Prior Developments”), I hereby grant the Company, and the Company Group shall have, a non-exclusive, royalty-free, irrevocable, perpetual, transferable worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell, and otherwise distribute such Prior Development as part of or in connection with such product or process.

          (b) Assignment of Developments. I agree that I will, without additional compensation, promptly make full written disclosure to the Company, and will hold in trust for the sole right and benefit of the Company all developments, original works of authorship, inventions, concepts, know-how, improvements, trade secrets, and similar proprietary rights, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or have solely or jointly conceived or developed or reduced to practice, or have caused or may cause to be conceived or developed or reduced to practice, during the Assignment Period, whether or not during regular working hours, provided they either (i) relate at the time of conception, development or reduction to practice to the business of any member of the Company Group, or the actual or anticipated research or development of any member of the Company Group; (ii) result from or relate to any work performed for any member of the Company Group; or (iii) are developed through the use of equipment, supplies, or facilities of any member of the Company Group, or any Confidential Information, or in consultation with personnel of any member of the Company Group (collectively referred to as “Developments”). I further acknowledge that all Developments made by me (solely or jointly with others) within the scope of and during the Assignment Period are “works made for hire” (to the greatest extent permitted by applicable law) for which I am, in part, compensated by my salary, unless regulated otherwise by law, but that, in the event any such Development is deemed not to be a work made for hire, I hereby assign to the Company, or its designee, all my right, title, and interest throughout the world in and to any such Development.

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          (c) Maintenance of Records. I agree to keep and maintain adequate and current written records of all Developments made by me (solely or jointly with others) during the Assignment Period. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, and any other format. The records will be available to and remain the sole property of the Company Group at all times. I agree not to remove such records from the Company’s place of business except as expressly permitted by Company Group policy, which may, from time to time, be revised at the sole election of the Company Group for the purpose of furthering the business of the Company Group.

          (d) Intellectual Property Rights. I agree to assist the Company, or its designee, at the Company’s expense, in every way to secure the rights of the Company Group in the Developments and any copyrights, patents, trademarks, service marks, database rights, domain names, mask work rights, moral rights, and other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments that the Company shall deem necessary in order to apply for, obtain, maintain, and transfer such rights and in order to assign and convey to the Company Group the sole and exclusive right, title, and interest in and to such Developments, and any intellectual property and other proprietary rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of the Assignment Period until the expiration of the last such intellectual property right to expire in any country of the world; provided, however, the Company shall reimburse me for my reasonable expenses incurred in connection with carrying out the foregoing obligation. If the Company is unable because of my mental or physical incapacity or unavailability for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Developments or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact to act for and in my behalf and stead to execute and file any such applications or records and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance, and transfer of letters patent or registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, that I now or hereafter have for past, present, or future infringement of any and all proprietary rights assigned to the Company.

          Section 3. Returning Company Group Documents.

          I agree that, at the time of termination of my employment with the Company for any reason, I will deliver to the Company (and will not keep in my possession, recreate, or deliver to anyone else) any and all Confidential Information and all other documents, materials, information, and property developed by me pursuant to my employment or otherwise belonging to the Company. I agree further that any property situated on the Company’s premises and owned by the Company (or any other member of the Company Group), including disks and other storage media, filing cabinets, and other work areas, is subject to inspection by personnel of any member of the Company Group at any time with or without notice.

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          Section 4. Disclosure of Agreement.

          As long as it remains in effect, I will disclose the existence of this Non-Interference Agreement to any prospective employer, partner, co-venturer, investor, or lender prior to entering into an employment, partnership, or other business relationship with such person or entity.

          Section 5. Restrictions on Interfering.

          (a) Non-Competition. During the period of my employment with the Company (the “Employment Period”) and the Post-Termination Non-Compete Period, I shall not, directly or indirectly, individually or on behalf of any person, company, enterprise, or entity, or as a sole proprietor, partner, stockholder, director, officer, principal, agent, or executive, or in any other capacity or relationship, engage in any Competitive Activities.

          (b) Non-Interference. During the Employment Period and the Post-Termination Non-Interference Period, I shall not, directly or indirectly for my own account or for the account of any other individual or entity, engage in Interfering Activities; provided, however, that I shall not be deemed to violate this subsection (b) to the extent that any employee of any subsequent employer of mine, in the ordinary course of business, conducts any activity described in subsection (c)(iii)(C) below as to any Business Relation, provided that I have not directed or instructed any such employee (either personally or through another) to contact any such Business Relation.

          (c) Definitions. For purposes of this Non-Interference Agreement :

               (i) “Business Relation” shall mean any current or prospective client, customer, licensee, or other business relation of the Company Group, or any such relation that was a client, customer, licensee, or other business relation within the six (6) month period prior to the expiration of the Employment Period, in each case, to whom I provided services, or with whom I transacted business, or whose identity became known to me in connection with my relationship with or employment by the Company and is not publicly known.

               (ii) “Competitive Activities” shall mean telecommunication services provided by a rural exchange carrier business which has substantial business operations in the state of Florida, Maine, New Hampshire, North Carolina, or Vermont.

               (iii) “Interfering Activities” shall mean (A) encouraging, soliciting, or inducing, or in any manner attempting to encourage, solicit, or induce, any Person employed by, or providing consulting services to, any member of the Company Group to terminate such Person’s employment or services (or in the case of a consultant, materially reducing such services) with the Company Group; (B) hiring any individual who was employed by the Company Group within the six (6) month period prior to the date of such hiring; or (C) encouraging, soliciting, or inducing, or in any manner attempting to encourage, solicit, or induce, any Business Relation to cease doing business with or reduce the amount of business conducted with the Company Group, or in any way

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interfering with the relationship between any such Business Relation and the Company Group.

          (iv) “Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust (charitable or non-charitable), unincorporated organization, or other form of business entity.

          (v) “Post-Termination Non-Compete Period” shall mean the period commencing on the date of the termination of the Employment Period for any reason and ending on the twelve (12) month anniversary of such date of termination.

          (vi) “Post-Termination Non-Interference Period” shall mean the period commencing on the date of the termination of the Employment Period for any reason and ending on the twelve (12) month anniversary of such date of termination.

          (d) Non-Disparagement. I agree that during the Employment Period, and at all times thereafter, I will not make any disparaging or defamatory comments regarding any member of the Company Group or its respective current or former directors, officers, or employees in any respect or make any comments concerning any aspect of my relationship with any member of the Company Group or any conduct or events which precipitated any termination of my employment from any member of the Company Group. However, my obligations under this subparagraph (d) shall not apply to disclosures required by applicable law, regulation, or order of a court or governmental agency.

          Section 6. Reasonableness of Restrictions.

          I acknowledge and recognize the highly competitive nature of the Company’s business, that access to Confidential Information renders me special and unique within the Company’s industry, and that I will have the opportunity to develop substantial relationships with existing and prospective clients, accounts, customers, consultants, contractors, investors, and strategic partners of the Company Group during the course of and as a result of my employment with the Company. In light of the foregoing, I recognize and acknowledge that the restrictions and limitations set forth in this Non-Interference Agreement are reasonable and valid in geographical and temporal scope and in all other respects and are essential to protect the value of the business and assets of the Company Group. I acknowledge further that the restrictions and limitations set forth in this Non-Interference Agreement will not materially interfere with my ability to earn a living following the termination of my employment with the Company and that my ability to earn a livelihood without violating such restrictions is a material condition to my employment with the Company.

          Section 7. Independence; Severability; Blue Pencil.

          Each of the rights enumerated in this Non-Interference Agreement shall be independent of the others and shall be in addition to and not in lieu of any other rights and remedies available to the Company Group at law or in equity. If any of the provisions of this Non-Interference Agreement or any part of any of them is hereafter construed or adjudicated to

5

be invalid or unenforceable, the same shall not affect the remainder of this Non-Interference Agreement, which shall be given full effect without regard to the invalid portions. If any of the covenants contained herein are held to be invalid or unenforceable because of the duration of such provisions or the area or scope covered thereby, I agree that the court making such determination shall have the power to reduce the duration, scope, and/or area of such provision to the maximum and/or broadest duration, scope, and/or area permissible by law, and in its reduced form said provision shall then be enforceable.

          Section 8. Injunctive Relief.

          I expressly acknowledge that any breach or threatened breach of any of the terms and/or conditions set forth in this Non-Interference Agreement may result in irreparable injury to the members of the Company Group. Therefore, I hereby agree that, in addition to any other remedy that may be available to the Company, any member of the Company Group shall be entitled to seek injunctive relief, specific performance, or other equitable relief by a court of appropriate jurisdiction in the event of any breach or threatened breach of the terms of this Non-Interference Agreement without the necessity of proving irreparable harm or injury as a result of such breach or threatened breach. Notwithstanding any other provision to the contrary, I acknowledge and agree that the Post-Termination Non-Compete Period, or Post-Termination Non-Interference Period, as applicable, shall be tolled during any period of violation of any of the covenants in Section 5 hereof.

          Section 9. Cooperation.

          I agree that, following any termination of my employment, I will continue to provide reasonable cooperation to the Company and/or any other member of the Company Group and its or their respective counsel in connection with any investigation, administrative proceeding, or litigation relating to any matter that occurred during my employment in which I was involved or of which I have knowledge. As a condition of such cooperation, the Company shall reimburse me for reasonable out-of-pocket expenses incurred at the request of the Company with respect to my compliance with this paragraph. I also agree that, in the event that I am subpoenaed by any person or entity (including, but not limited to, any government agency) to give testimony or provide documents (in a deposition, court proceeding, or otherwise) that in any way relates to my employment by the Company and/or any other member of the Company Group, I will give prompt notice of such request to the Company and will make no disclosure until the Company and/or the other member of the Company Group has had a reasonable opportunity to contest the right of the requesting person or entity to such disclosure.

          Section 10. General Provisions.

          (a) Governing Law and Jurisdiction. THIS NON-INTERFERENCE AGREEMENT IS GOVERNED BY AND IS TO BE CONSTRUED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD TO CONFLICT OF LAWS RULES. ANY DISPUTE OR CLAIM ARISING OUT OF OR RELATING TO THIS NON-INTERFERENCE AGREEMENT OR CLAIM OF BREACH HEREOF SHALL BE BROUGHT EXCLUSIVELY IN FEDERAL COURT IN THE STATE OF NORTH CAROLINA. BY

6

EXECUTION OF THE NON-INTERFERENCE AGREEMENT, THE PARTIES HERETO, AND THEIR RESPECTIVE AFFILIATES, CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURT, AND WAIVE ANY RIGHT TO CHALLENGE JURISDICTION OR VENUE IN SUCH COURT WITH REGARD TO ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THE NON-INTERFERENCE AGREEMENT. EACH PARTY TO THIS NON-INTERFERENCE AGREEMENT ALSO HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THIS NON-INTERFERENCE AGREEMENT.

          (b) Entire Agreement. This Non-Interference Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Non-Interference Agreement, nor any waiver of any rights under this Non-Interference Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights, or compensation will not affect the validity or scope of this Non-Interference Agreement.

          (c) No Right of Continued Employment. I acknowledge and agree that nothing contained herein shall be construed as granting me any right to continued employment by the Company, and the right of the Company to terminate my employment at any time and for any reason, with or without cause, is specifically reserved.

          (d) Successors and Assigns. This Non-Interference Agreement will be binding upon my heirs, executors, administrators, and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. I expressly acknowledge and agree that this Non-Interference Agreement may be assigned by the Company without my consent to any other member of the Company Group as well as any purchaser of all or substantially all of the assets or stock of the Company, whether by purchase, merger, or other similar corporate transaction, provided that the license granted pursuant to Section 2(a) may be assigned to any third party by the Company without my consent.

          (e) Survival. The provisions of this Non-Interference Agreement shall survive the termination of my employment with the Company and/or the assignment of this Non-Interference Agreement by the Company to any successor in interest or other assignee.

*                *                *

          I, Kenneth W. Amburn, have executed this Confidentiality, Non-Interference, and Invention Assignment Agreement on the respective date set forth below:

Date: June 17, 2011	/s/ Kenneth W. Amburn
	(Signature)

7

EX-21

Exhibit 21

FAIRPOINT COMMUNICATIONS, INC.
(formerly known as MJD Communications, Inc.)
SUBSIDIARIES

Name	Jurisdiction of Incorporation
ST Enterprises, Ltd.		Kansas
FairPoint Vermont, Inc.		Delaware
ST Long Distance, Inc.		Delaware
Sunflower Telephone Company, Inc.		Kansas
Northland Telephone Company of Maine, Inc.		Maine
MJD Ventures, Inc.		Delaware
GTC Communications, Inc. (f/k/a TPG Communications, Inc.)		Delaware
St. Joe Communications, Inc.		Florida
GTC, Inc.		Florida
Fremont Telcom Co.		Idaho
Fretel Communications, LLC		Idaho
C-R Communications, Inc.		Illinois
C-R Telephone Company		Illinois
C-R Long Distance, Inc.		Illinois
Community Service Telephone Co.		Maine
Sidney Telephone Company		Maine
Utilities, Inc.		Maine
China Telephone Company		Maine
Maine Telephone Company		Maine
Standish Telephone Company		Maine
UI Long Distance, Inc.		Maine
Berkshire Telephone Corporation		New York
Berkshire Cable Corp.		New York
Berkshire Cellular, Inc.		New York
Berkshire New York Access, Inc.		New York
Chautauqua and Erie Telephone Corporation		New York
Chautauqua & Erie Communications, Inc.
(d/b/a C& E Teleadvantage)		New York
C & E Communications, Ltd.		New York
Taconic Telephone Corp.		New York
Taconic Technology Corp.		New York
Taconic TelCom Corp.		New York
The Columbus Grove Telephone Company		Ohio
Quality One Technologies, Inc.		Ohio
The Germantown Independent Telephone Company		Ohio
Germantown Long Distance Company		Ohio
The Orwell Telephone Company		Ohio
Orwell Communications, Inc.		Ohio

Name	Jurisdiction of Incorporation
Chouteau Telephone Company		Oklahoma
Bentleyville Communications Corporation		Pennsylvania
BE Mobile Communications, Incorporated		Pennsylvania
Marianna and Scenery Hill Telephone Company		Pennsylvania
Marianna Tel, Inc.		Pennsylvania
Peoples Mutual Telephone Company		Virginia
Peoples Mutual Long Distance Company		Virginia
Comerco, Inc.		Washington
YCOM Networks, Inc.		Washington
Ellensburg Telephone Company		Washington
Elltel Long Distance Corp.		Delaware
MJD Services Corp.		Delaware
Big Sandy Telecom, Inc.		Delaware
Bluestem Telephone Company		Delaware
Columbine Telecom Company (f/k/a Columbine Acquisition Corp.)		Delaware
Odin Telephone Exchange, Inc.		Illinois
Ravenswood Communications, Inc.		Illinois
El Paso Long Distance Company		Illinois
The El Paso Telephone Company		Illinois
FairPoint Communications Missouri, Inc.		Missouri
Unite Communications Systems, Inc.		Missouri
ExOp of Missouri, Inc.		Missouri
FairPoint Carrier Services, Inc.		Delaware
(f/k/a FairPoint Communications Solutions Corp., f/k/a FairPoint Communications Corp.)
FairPoint Broadband, Inc.		Delaware
Northern New England Telephone Operations LLC		Delaware
Telephone Operating Company of Vermont LLC		Delaware
Enhanced Communications of Northern New England Inc.		Delaware
FairPoint Logistics, Inc. (f/k/a MJD Capital Corp.)		South Dakota
FairPoint Business Services LLC		Delaware

EX-31.1

Exhibit 31.1

CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paul H. Sunu, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of FairPoint Communications, Inc. (the “Company”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Quarterly Report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(i)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(ii)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(iii)	evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
(iv)	disclosed in this Quarterly Report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(i)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(ii)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: August 9, 2011

/s/ Paul H. Sunu

Paul H. Sunu

Chief Executive Officer

69

EX-31.2

Exhibit 31.2

CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ajay Sabherwal, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of FairPoint Communications, Inc. (the “Company”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Quarterly Report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(i)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(ii)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(iii)	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
(iv)	disclosed in this Quarterly Report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(i)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(ii)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: August 9, 2011

/s/ Ajay Sabherwal

Ajay Sabherwal

Chief Financial Officer

70

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Quarterly Report on Form 10-Q of FairPoint Communications, Inc. (the “Company”) for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul H. Sunu, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Paul H. Sunu Paul H. Sunu
Chief Executive Officer

August 9, 2011

          A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

1

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Quarterly Report on Form 10-Q of FairPoint Communications, Inc. (the “Company”) for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ajay Sabherwal, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

          1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

          2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ajay Sabherwal

Ajay Sabherwal

Chief Financial Officer

August 9, 2011

          A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

1

XML



Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011 Successor Company	Dec. 31, 2010 Predecessor Company
Stockholders' equity (deficit):
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	37,500,000	200,000,000
Common stock, shares issued	26,195,265	89,440,334
Common stock, shares outstanding	26,195,265	89,440,334

XML



Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data	3 Months Ended	5 Months Ended	0 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2011 Successor Company	Jun. 30, 2011 Successor Company	Jan. 24, 2011 Predecessor Company	Jun. 30, 2010 Predecessor Company	Jun. 30, 2010 Predecessor Company
Revenues	$ 262,636	$ 451,038	$ 66,378	$ 271,563	$ 542,364
Operating expenses:
Cost of services and sales, excluding depreciation and amortization	114,468	201,641	38,766	133,211	270,680
Selling, general and administrative expense, excluding depreciation and amortization	88,316	151,798	27,161	97,062	190,646
Depreciation and amortization	90,614	153,393	21,515	71,472	142,854
Reorganization related expense	2,510	5,246	0	0	0
Total operating expenses	295,908	512,078	87,442	301,745	604,180
Loss from operations	(33,272)	(61,040)	(21,064)	(30,182)	(61,816)
Other income (expense):
Interest expense	(16,996)	(29,487)	(9,321)	(35,721)	(70,351)
Other	350	831	(132)	105	131
Total other expense	(16,646)	(28,656)	(9,453)	(35,616)	(70,220)
Loss before reorganization items and income taxes	(49,918)	(89,696)	(30,517)	(65,798)	(132,036)
Reorganization items	0	0	897,313	1,375	(15,216)
(Loss) income before income taxes	(49,918)	(89,696)	866,796	(64,423)	(147,252)
Income tax benefit (expense)	22,821	38,176	(279,889)	10,245	6,744
Net (loss) income	$ (27,097)	$ (51,520)	$ 586,907	$ (54,178)	$ (140,508)
Weighted average shares outstanding:
Basic	25,652	25,644	89,424	89,424	89,424
Diluted	25,652	25,644	89,695	89,424	89,424
(Loss) earnings per share:
Basic	$ (1.06)	$ (2.01)	$ 6.56	$ (0.61)	$ (1.57)
Diluted	$ (1.06)	$ (2.01)	$ 6.54	$ (0.61)	$ (1.57)

XML



Document and Entity Information	5 Months Ended
	Jun. 30, 2011	Aug. 09, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	FAIRPOINT COMMUNICATIONS INC
Entity Central Index Key	0001062613
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		26,193,040

XML



Recent Accounting Pronouncements

5 Months Ended

Jun. 30, 2011

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

(4) Recent Accounting Pronouncements

     On January 1, 2011, the Company adopted the accounting standard update (“ASU”) regarding when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. This ASU modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the previously existing guidance, which required that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this ASU are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. The adoption of this ASU did not have a material impact on the Company’s condensed results of operations and financial position.

     In October 2009, the FASB issued an ASU regarding revenue recognition for multiple deliverable arrangements. This method allows a vendor to allocate revenue in an arrangement using its best estimate of selling price if neither vendor specific objective evidence nor third party evidence of selling price exists. Accordingly, the residual method of revenue allocation will no longer be permissible. This ASU must be adopted no later than the beginning of the first fiscal year beginning on or after June 15, 2010. The adoption of this ASU did not have a material impact on the Company’s condensed results of operations and financial position.

XML



Employee Benefit Plans

5 Months Ended

Jun. 30, 2011

Employee Benefit Plans [Abstract]

Employee Benefit Plans

(9) Employee Benefit Plans

     The Company remeasured its pension and other post-employment benefit assets and liabilities as of December 31, 2010, in accordance with the Compensation—Retirement Benefits Topic of the ASC. This measurement was based on a weighted average discount rate of 5.61%, as well as certain other valuation assumption modifications. In conjunction with fresh start accounting, the Company remeasured its pension and other post-employment benefit assets and liabilities at the Effective Date. See note 2.

     Components of the net periodic benefit cost related to the Company’s pension and post-retirement healthcare plans for the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010 are presented below (in thousands).

		Successor Company
								One Hundred Fifty-Seven Days
		Three Months Ended						Ended
		June 30, 2011						June 30, 2011
					Post-						Post-
		Qualified			retirement			Qualified			retirement
		Pension			Health			Pension			Health
Service cost	$		3,177	$		4,310	$		5,295	$		7,183
Interest cost			3,655			4,813			6,092			8,022
Expected return on plan assets			(3,634)			(3)			(6,056)			(5)
Net periodic benefit cost	$		3,198	$		9,120	$		5,331	$		15,200

		Predecessor Company
		Twenty-Four Days Ended
		January 24, 2011
					Post-
		Qualified			retirement
		Pension			Health
Service cost	$		849	$		1,167
Interest cost			934			1,252
Expected return on plan assets			(1,089)			(1)
Amortization of prior service cost			98			276
Amortization of actuarial (gain) loss			283			368
Net periodic benefit cost	$		1,075	$		3,062

		Predecessor Company
		Three Months Ended						Six Months Ended
		June 30, 2010						June 30, 2010
		(Restated)						(Restated)
					Post-						Post-
		Qualified			retirement			Qualified			retirement
		Pension			Health			Pension			Health
Service cost	$		2,881	$		3,453	$		5,762	$		6,906
Interest cost			3,011			3,980			6,023			7,961
Expected return on plan assets			(4,148)			—			(8,296)			—
Amortization of prior service cost			381			1,072			762			2,145
Amortization of actuarial (gain) loss			279			778			558			1,555
Net periodic benefit cost	$		2,404	$		9,283	$		4,809	$		18,567

     The Company expects to contribute approximately $6.8 million to its qualified pension plans during fiscal year 2011. The Company’s pension plan funding requirements are based on the Pension Protection Act of 2006 and subsequent funding relief passed by Congress and regulations published by the IRS.

     The Company expects to contribute approximately $2.3 million to its post-retirement healthcare plans in 2011 for benefit payments to current retirees.

     For the three and six months ended June 30, 2011, the actual gain on the pension plan assets was approximately 1.8% and 5.0%, respectively. Net periodic benefit cost for 2011 assumes a weighted average annualized expected return on plan assets of approximately 8.3%. Should the Company’s actual return on plan assets become significantly lower than the expected return assumption, the net periodic benefit cost may increase in future periods and the Company may be required to contribute additional funds to its pension plans.

     During the three months ended March 31, 2010, $33.3 million was transferred from Verizon’s defined benefit pension plans’ trusts to the Company’s pension plan trust. As of December 31, 2009, a disputed amount was pending final validation by a third-party actuary of the census information and related actuarial calculations in accordance with relevant statutory and regulatory guidelines and the Employee Matters Agreement, dated January 15, 2007 between Verizon and the Company (the “Employee Matters Agreement”). The disputed amount was not included in the Company’s pension plan assets at December 31, 2009. By letter dated July 29, 2010, the third-party actuary appointed to perform the review and validation determined that an additional $2.5 million, adjusted for gains or losses since the date of the original transfer, should be transferred from Verizon’s defined benefit plans’ trusts to the Company’s represented employees pension plan trust. This transfer was received in the amount of $2.4 million on September 1, 2010, at which time the Company’s net pension obligation was decreased by this amount.

     The Company and its subsidiaries sponsor four voluntary 401(k) savings plans that, in the aggregate, cover all eligible Legacy FairPoint employees, and two voluntary 401(k) savings plans that, in the aggregate, cover all eligible Northern New England operations employees (collectively, “the 401(k) Plans”). Each 401(k) Plan year, the Company contributes to the 401(k) Plans an amount of matching contributions determined by the Company at its discretion for management employees and based on the collective bargaining agreements for all other employees. For the six months ended June 30, 2011 and for the 401(k) Plan year ended December 31, 2010, the Company generally matched 100% of each employee’s contribution up to 5% of compensation. Total Company contributions to all 401(k) Plans were $2.5 million, $4.8 million, $0.7 million, $2.6 million and $5.0 million for the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, respectively.

XML



Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	5 Months Ended	0 Months Ended	6 Months Ended
	Jun. 30, 2011 Successor Company	Jan. 24, 2011 Predecessor Company	Jun. 30, 2010 Predecessor Company
Cash flows from operating activities:
Net (loss) income	$ (51,520)	$ 586,907	$ (140,508)
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	(35,213)	276,204	(6,753)
Provision for uncollectible revenue	10,070	3,454	16,522
Depreciation and amortization	153,393	21,515	142,854
Post-retirement accruals	12,850	2,654	15,911
Pension accruals	4,779	986	4,307
Loss on abandoned projects	0	0	12,275
Other non cash items	22	130	1,642
Changes in assets and liabilities arising from operations:
Accounts receivable	(619)	(7,752)	(704)
Prepaid and other assets	4,921	(3,423)	(13,905)
Accounts payable and accrued liabilities	7,790	30,258	29,632
Accrued interest payable	183	9,017	67,959
Other assets and liabilities, net	(1,457)	177	(6,697)
Reorganization adjustments:
Non-cash reorganization income	(709)	(917,358)	(20,246)
Claims payable and estimated claims accrual	(55,858)	(1,096)
Restricted cash - cash claims reserve	46,932	(82,764)
Total adjustments	147,084	(667,998)	242,797
Net cash provided by (used in) operating activities	95,564	(81,091)	102,289
Cash flows from investing activities:
Net capital additions	(93,369)	(12,477)	(103,222)
Distributions from investments	618		79
Net cash used in investing activities	(92,751)	(12,477)	(103,143)
Cash flows from financing activities:
Loan origination costs	(884)	(1,500)	(1,100)
Proceeds from issuance of long-term debt			5,513
Restricted cash	1,372	34	(467)
Repayment of capital lease obligations	(505)	(201)	(1,043)
Net cash (used in) provided by financing activities	(17)	(1,667)	2,903
Net change	2,796	(95,235)	2,049
Cash, beginning of period	10,262	105,497	109,355
Cash, end of period	13,058	10,262	111,404
Supplemental disclosure of cash flow information:
Capital additions included in accounts payable, claims payable and estimated claims accrual or liabilities subject to compromise at period-end	3,297	1,818	2,431
Reorganization costs paid	$ 16,857	$ 11,110	$ 29,394

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Income Taxes

5 Months Ended

Jun. 30, 2011

Income Taxes [Abstract]

Income Taxes

(6) Income Taxes

     The Company recorded an income tax benefit to its Successor Company for the three months ended June 30, 2011 of $22.8 million, an income tax benefit to its Successor Company for the 157 day period ended June 30, 2011 of $38.2 million and an income tax expense to its Predecessor Company for the 24 day period ended January 24, 2011 of $279.9 million, respectively. The Company recorded an income tax benefit of $10.2 million and $6.7 million for the three and six months ended June 30, 2010, respectively.

     For the three months ended June 30, 2011, the Successor Company’s effective tax benefit rate on $49.9 million of pre-tax loss was 45.7%. The rate differs from the 35% federal statutory rate primarily due to a prior period adjustment. Without the prior period adjustment the effective tax rate would have been 38.9%.

     For the 157 day period ended June 30, 2011, the Successor Company’s effective tax benefit rate on $89.7 million of pre-tax loss was 42.6%. The rate differs from the 35% federal statutory rate primarily due to a prior period adjustment.

     For the 24 day period ended January 24, 2011, the Predecessor Company’s effective tax rate on $866.8 million of pre-tax income was 32.3%. The rate differs from the 35% federal statutory rate primarily due to the release of the valuation allowance and other miscellaneous reorganization adjustments.

     The effective tax rate for the three months ended June 30, 2010 was a 15.9% benefit. The effective tax rate was impacted by non-deductible restructuring charges and post-petition interest, as well as a significant increase in the Company’s valuation allowance for deferred tax assets due to its inability, by rule, to rely on future earnings to offset its NOLs during the Chapter 11 Cases.

     The effective tax rate for the six months ended June 30, 2010 was a 4.6% benefit. The effective tax rate was impacted by a one-time, non-cash income tax charge of $6.8 million during the first quarter of 2010, as a result of the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, both of which became law in March 2010 (collectively, the “Health Care Act”). The effective tax rate for the six months ended June 30, 2010 was also impacted by non-deductible restructuring charges and post-petition interest. In addition, tax benefits from the reported loss during the period were partially offset by an increase in the valuation allowance on the Company’s deferred tax assets.

     At June 30, 2011, the Company had federal and state NOL carryforwards of $199.0 million that will expire from 2019 to 2031. At June 30, 2011, the Company had no alternative minimum tax credits. Legacy FairPoint completed an initial public offering on February 8, 2005, which resulted in an “ownership change” within the meaning of the U.S. Federal income tax laws addressing NOL carryforwards, alternative minimum tax credits, and other similar tax attributes. The Merger and the Company’s emergence from the Chapter 11 Cases also resulted in ownership changes. As a result of these ownership changes, there are specific limitations on the Company’s ability to use its NOL carryfowards and other tax attributes. It is the Company’s belief that it can use the NOLs even with these restrictions in place.

     During the 24 days ended January 24, 2011 the Company excluded from taxable income $1,045.4 million of income from the discharge of indebtedness as defined under Internal Revenue Code (“IRC”) Section 108. There was no income from the discharge of indebtedness for the three months ended June 30, 2011 and the 157 days ended June 30, 2011. IRC Section 108 excludes from taxable income the amount of indebtedness discharged under a Chapter 11 case. IRC Section 108 also requires a reduction of tax attributes equal to the amount of excluded taxable income to be made on the first day of the tax year following the emergence from bankruptcy. We have not finalized our assessment of the tax effects of the bankruptcy emergence and this estimate, as well as the Plan’s effect on all tax attributes, is subject to revision, which could be significant.

     In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management determines its estimates of future taxable income based upon the scheduled reversal of deferred tax liabilities, projected future taxable income exclusive of reversing temporary differences, and tax planning strategies. The Company establishes valuation allowances for deferred tax assets when it is estimated to be more likely than not that the tax assets will not be realized.

     At June 30, 2011 and December 31, 2010, the Company established a valuation allowance of $29.3 million and $105.6 million, respectively, against its deferred tax assets.

     The Income Taxes Topic of the ASC requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. The unrecognized tax benefits under the Income Taxes Topic of the ASC are similar to the income tax reserves reflected prior to adoption under SFAS No. 5, Accounting for Contingencies, whereby reserves were established for probable loss contingencies that could be reasonably estimated, with the reduction as a result of the termination of the Tax Sharing Agreements with Verizon. The Company’s unrecognized tax benefits totaled $1.0 million as of June 30, 2011 and $5.4 million as of December 31, 2010. Of the $1.0 million of unrecognized tax benefits at June 30, 2011, the entire $1.0 million would impact the Company’s effective rate, if recognized. The unrecognized tax benefits relate to tax reserves recorded in a business combination. Furthermore, the Company does not anticipate any significant increase or decrease to the unrecognized tax benefits within the next twelve months.

     The Company recognizes any interest and penalties accrued related to unrecognized tax benefits in income tax expense. For the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, the Company did not make any payment of interest and penalties. The Company had $1.0 million (after-tax) for the payment of interest and penalties accrued in the condensed consolidated balance sheet at December 31, 2010. There was nothing accrued in the condensed consolidated balance sheet for the payment of interest and penalties at June 30, 2011.

     The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and with various state and local governments. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004.

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Stockholders Equity (Deficit)

5 Months Ended

Jun. 30, 2011

Stockholders Equity (Deficit) [Abstract]

Stockholders' Equity (Deficit)

(11) Stockholders’ Equity (Deficit)

     On the Effective Date, the Company issued 25,659,877 shares of Common Stock and 3,458,390 Warrants to purchase Common Stock and reserved 610,309 shares and 124,012 Warrants for satisfaction of certain pending claims related to the Chapter 11 Cases. During the three months ended June 30, 2011 the Company issued 2,183 shares and 3,723 Warrants from this reserve. During the six months ended June 30, 2011 the Company issued 539,738 shares and 3,723 Warrants from this reserve. At June 30, 2011, 37,500,000 shares of Common Stock were authorized, 26,195,265 shares of Common Stock were outstanding, and 70,571 shares and 120,289 Warrants remained reserved for satisfaction of pending claims related to the Chapter 11 Cases.

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Interest Rate Swap Agreements

5 Months Ended

Jun. 30, 2011

Interest Rate Swap Agreements [Abstract]

Interest Rate Swap Agreements

(7) Interest Rate Swap Agreements

     The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company’s outstanding and forecasted debt obligations. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company’s future cash flows.

     The Company uses variable-rate debt to finance its operations, capital expenditures and acquisitions. The variable-rate debt obligations expose the Company to variability in interest payments due to changes in interest rates. The Company believes it is prudent to limit the variability of a portion of its interest payments. To meet this objective, from time to time, the Company enters into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk.

     As of June 30, 2011, the Company was not party to any interest rate swap agreements since the current variable to fixed swap market rates were substantially below the LIBOR floor contained in the Exit Credit Agreement.

     As of December 31, 2010, the Company was party to interest rate swap agreements under the ISDA Master Agreement with Wachovia Bank, N.A., dated as of December 12, 2000, as amended and restated as of February 1, 2008, and the ISDA Master Agreement with Morgan Stanley Capital Services Inc., dated as of February 1, 2005 (collectively, the “Swaps”) which effectively changed the variable rate on the debt obligations to a fixed rate. Under the terms of the Swaps, the Company was required to make a payment if the variable rate was below the fixed rate, or it received a payment if the variable rate was above the fixed rate. The $98.8 million carrying value of the Swaps represented the termination value of the Swaps as determined by the respective counterparties following the filing of the Chapter 11 Cases. The Swaps were terminated on the Effective Date.

     The Company had determined that the Swaps did not meet the criteria for hedge accounting. Therefore, changes in fair value of the Swaps were recorded as other income (expense) on the condensed consolidated statement of operations. Following the filing of the Chapter 11 Cases, the Swaps retained their termination value and no gain or loss on derivative instruments was recorded to the consolidated statement of operations.

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Dividends

5 Months Ended

Jun. 30, 2011

Dividends [Abstract]

Dividends

(5) Dividends

     The Company currently does not pay a dividend on the New Common Stock and does not expect to reinstate the payment of dividends.

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Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) (USD $) In Thousands	3 Months Ended	5 Months Ended	0 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2011 Successor Company	Jun. 30, 2011 Successor Company	Jan. 24, 2011 Predecessor Company	Jun. 30, 2010 Predecessor Company	Jun. 30, 2010 Predecessor Company
Net (loss) income	$ (27,097)	$ (51,520)	$ 586,907	$ (54,178)	$ (140,508)
Other comprehensive income, net of taxes:
Defined benefit pension and post-retirement plans (net of $0 million, $1.0 million, $0 million, $0.5 million and $2.0 million tax expense, respectively)	0	0	493	1,502	3,004
Total other comprehensive income	0	0	493	1,502	3,004
Comprehensive (loss) income	$ (27,097)	$ (51,520)	$ 587,400	$ (52,676)	$ (137,504)

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Organization and Basis of Financial Reporting

5 Months Ended

Jun. 30, 2011

Organization and Basis of Financial Reporting [Abstract]

Organization and Basis of Financial Reporting

(1) Organization and Basis of Financial Reporting

     FairPoint is a leading provider of communications services in rural and small urban communities, primarily in northern New England, offering an array of services, including high speed data (“HSD”), Internet access, voice, television and broadband product offerings, to residential, wholesale and business customers. FairPoint operates in 18 states with approximately 1.4 million access line equivalents (including voice access lines and HSD, which include digital subscriber lines (“DSL”), wireless broadband, cable modem and fiber-to-the-premises) as of June 30, 2011.

     Basis of Financial Reporting in Reorganization

     On October 26, 2009 (the “Petition Date”), 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 Company’s Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as confirmed, the “Plan”) and on January 24, 2011 (the “Effective Date”) the Company emerged from Chapter 11 protection. 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. See note 2 for details of the remaining open cases.

     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.

     Upon the Effective Date, the Company adopted fresh start accounting in accordance with guidance under the applicable reorganization accounting rules, pursuant to which the Company’s reorganization value, which represents the fair value of the entity before considering liabilities, and approximates the amount a willing buyer would pay for the assets of the entity immediately after the reorganization, has been allocated to the fair value of assets in conformity with guidance under the applicable accounting rules for business combinations, using the purchase method of accounting. The amount remaining after allocation of the reorganization value to the fair value of identified tangible and intangible assets has been reflected as goodwill, which is subject to periodic evaluation for impairment. In addition to fresh start accounting, the Company’s future consolidated financial statements will reflect all effects of the transactions contemplated by the Plan. Accordingly, the Company’s future condensed consolidated statements of financial position and condensed consolidated statements of operations will not be comparable in many respects to the Company’s condensed consolidated statements of financial position and condensed consolidated statements of operations for periods prior to the adoption of fresh start accounting and prior to accounting for the effects of the reorganization. See note 2 for a presentation of the impact of emergence from reorganization and fresh start accounting on the Company’s financial position.

Restatement

     In its Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “2010 Annual Report”), the Company restated (the “Restatement”) its unaudited condensed consolidated financial statements for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010.

     The Company’s previously filed Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “June 30, 2010 Quarterly Report”), which was impacted by the Restatement, was not amended. Accordingly, the Company cautions you that certain information contained in the June 30, 2010 Quarterly Report should no longer be relied upon, including the Company’s previously issued and filed June 30, 2010 interim consolidated financial statements and any financial information derived therefrom. In addition, the Company cautions you that other communications or filings related to the June 30, 2010 interim consolidated financial statements and which were filed or otherwise released prior to the filing of the 2010 Annual Report with the SEC, should no longer be relied upon. All financial information in this Quarterly Report for the three and six months ended June 30, 2010 affected by the Restatement adjustments reflect such financial information as restated.

The restated June 30, 2010 interim consolidated financial statements were corrected for the following errors:

     Project Abandonment Adjustment

     Certain capital projects, principally a wireless broadband fixed asset project, had been abandoned but the write-off of all of the related capitalized costs had not occurred in a timely manner.

     Costs Capitalized to Property, Plant and Equipment Adjustment

     Due to a backlog of capital projects not yet closed, certain costs (principally labor expenses) remained capitalized to property, plant and equipment rather than expensed.

     Application of Overhead Costs Adjustment

     An error was discovered in the application of overhead costs to capital projects.

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 the restatement of the June 30, 2010 interim consolidated financial statements, 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 were 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 aggregate impact of these adjustments resulted in an increase to the Company’s previously reported pre-tax loss for the three and six month period ended June 30, 2010 of approximately $17.6 million and $28.3 million, respectively, which is mainly attributable to a reduction to reported revenues of approximately $2.4 million and $6.0 million, respectively, an increase to the Company’s previously reported operating expenses of approximately $18.3 million and $25.5 million, respectively, offset by a decrease in other expense of $3.2 million and $3.2 million, respectively. The aggregate impact of the adjustments for the three and six months ended June 30, 2010 resulted in an increase in net loss of approximately $17.6 million and $28.3 million, net of taxes, respectively, and a decrease in the Company’s reported capital expenditures of approximately $6.7 million and $11.4 million, respectively.

     The Company expects that these adjustments will not have a material impact on the Company’s overall liquidity in the future.

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Reorganization Under Chapter 11

5 Months Ended

Jun. 30, 2011

Reorganization Under Chapter 11 [Abstract]

Reorganization Under Chapter 11

(2) Reorganization Under Chapter 11

Emergence from Chapter 11 Proceedings

     On the Petition Date, the Debtors filed the Chapter 11 Cases.

     On January 13, 2011, the Bankruptcy Court entered into an Order Confirming Debtors’ Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated as of December 29, 2010 (the “Confirmation Order”), which confirmed the Plan.

     On the Effective Date, the Company substantially consummated its 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).

Plan of Reorganization

     General

     The Plan provided for the cancellation and extinguishment on the Effective Date of all of the Company’s equity interests outstanding on or prior to the Effective Date, including but not limited to all outstanding shares of the Company’s common stock, par value $0.01 per share (the “Old Common Stock”), options and contractual or other rights to acquire any equity interests.

     The Plan provided for:

• (i) The lenders under the Credit Agreement, dated as of March 31, 2008, by and among FairPoint Communications, Spinco, Bank of America, N.A. as syndication agent, Morgan Stanley Senior Funding, Inc. and Deutsche Bank Securities Inc., as co-documentation agents, and Lehman Commercial Paper Inc., as administrative agent, and the lenders party thereto (as amended, supplemented or otherwise modified from time to time, the “Pre-Petition Credit Facility”), (ii) the administrative agent under the Pre-Petition Credit Facility (other than certain indemnity and reimbursement rights of the administrative agent which survived) and (iii) holders of other claims against the Company arising under the Pre-Petition Credit Facility or ancillary agreements (including swap agreements) (collectively, the “Pre-Petition Credit Facility Claims”) to receive the following in full and complete satisfaction of such Pre-Petition Credit Facility Claims: (i) a pro rata share of a $1,000.0 million term loan facility (the “Exit Term Loan”), (ii) a pro rata share of certain cash payments, (iii) a pro rata share of 23,620,718 shares of our new common stock, par value $0.01 per share (the “New Common Stock” or “Common Stock”) and (iv) a pro rata share of a 55% interest in the FairPoint Litigation Trust (the “Litigation Trust”);

• Holders of allowed unsecured claims against FairPoint Communications, including the Pre-Petition Notes (as defined below) (the “FairPoint Communications Unsecured Claims”) to receive the following in full and complete satisfaction of such FairPoint Communications Unsecured Claims: (i) a pro rata share of 2,101,676 shares of New Common Stock, (ii) a pro rata share of a 45% interest in the Litigation Trust and (iii) a pro rata share of the warrants (the “Warrants”) issued by the Company in connection with a Warrant Agreement (the “Warrant Agreement”) that the Company entered into with The Bank of New York Mellon, as warrant agent, on the Effective Date; and

• Holders of allowed unsecured claims against the Company’s subsidiaries and holders of certain unsecured convenience claims against the Company to receive payment in full in cash in the amount of their allowed claims.

     In addition, the Plan also provided for:

• Certain of the Company’s employees and a consultant to receive (a) cash bonuses made pursuant to the FairPoint Communications, Inc. 2010 Success Bonus Plan (the “Success Bonus Plan”) and/or (b) New Common Stock awards, consisting of restricted shares of New Common Stock and/or options to purchase shares of New Common Stock, pursuant to the terms of the FairPoint Communications, Inc. 2010 Long Term Incentive Plan (the “Long Term Incentive Plan”); and

• Members of the Company’s board appointed on the Effective Date (the “New Board”) to receive options to purchase New Common Stock pursuant to the terms of the Long Term Incentive Plan.

     Finally, the Plan included certain discharges, releases, exculpations and injunctions that became effective on the Effective Date, including the following:

• Except as otherwise provided in the Plan, all existing claims against, and equity interests in, the Company that arose prior to the Effective Date were released, terminated, extinguished and discharged;

• In consideration of the services of the Released Parties (as defined in the Plan), the Company and all persons who held, or may have held, claims against, or equity interests in, the Company prior to the Effective Date released the Released Parties (as defined in the Plan) from claims, causes of action and liabilities related to the Company;

• None of the Company, the Released Parties (as defined in the Plan) or the Litigation Trustee (as defined below) shall have or incur any liability relating to or arising out of the Chapter 11 Cases; and

• Except as otherwise provided in the Plan, all persons are permanently enjoined from asserting claims, liabilities, causes of action, interest or remedies that are released or discharged pursuant to the Plan.

Termination of Material Agreements

     On the Effective Date, in accordance with the Plan, the Company terminated, among others, the following material agreements:

• The Pre-Petition Credit Facility (except that the Pre-Petition Credit Facility continues in effect solely for the purposes of allowing creditors under the Pre-Petition Credit Facility to receive distributions under the Plan and to preserve certain rights of the administrative agent), and all notes, security agreements, swap agreements and other agreements associated therewith;

• Each of the respective indentures governing (i) the 13-1/8% Senior Notes due April 1, 2018 (the “Old Notes”), which were issued pursuant to the Indenture, dated as of March 31, 2008, by and between Spinco and U.S. Bank National Association, as amended (the “Old Indenture”), and (ii) the 13-1/8% Senior Notes due April 2, 2018 (the “New Notes” and, together with the Old Notes, the “Pre-Petition Notes”), which were issued pursuant to the Indenture, dated as of July 29, 2009, by and between FairPoint Communications, Inc. and U.S. Bank National Association (the “New Indenture”) (except to the extent to allow the Company or the relevant Pre-Petition Notes indenture trustee, as applicable, to make distributions pursuant to the Plan on account of claims related to such Pre-Petition Notes); and

• The Debtor-in-Possession Credit Agreement, dated as of October 27, 2009 (as amended, the “DIP Credit Agreement”), by and among FairPoint Communications and FairPoint Logistics, Inc. (“FairPoint Logistics,” and together with FairPoint Communications, the “DIP Borrowers”), certain financial institutions (the “DIP Lenders”) and Bank of America, N.A., as the administrative agent for the DIP Lenders (the “DIP Administrative Agent”), which was terminated by its conversion into the new $75.0 million Exit Revolving Facility (as defined herein), and all notes, security agreements and other agreements related to the DIP Credit Agreement.

Exit Credit Agreement

     On the Effective Date, FairPoint Communications and FairPoint Logistics (the “Exit Borrowers”) entered into a $1,075.0 million senior secured credit facility with a syndicate of lenders and Bank of America, N.A., as the administrative agent for the lenders, arranged by Banc of America Securities LLC (the “Exit Credit Agreement”). The Exit Credit Agreement is comprised of a $75.0 million revolving loan facility (the “Exit Revolving Facility”), which has a sub-facility providing for the issuance of up to $30.0 million of letters of credit, and the Exit Term Loan (collectively, the “Exit Credit Agreement Loans”). On the Effective Date, the Company paid to the lenders providing the Exit Revolving Facility an aggregate fee equal to $1.5 million. Interest on the Exit Credit Agreement Loans accrues at an annual rate equal to either (a) the British Bankers Association LIBOR Rate (“LIBOR”) plus 4.50%, with a minimum LIBOR floor of 2.00% for the Exit Term Loan, or (b) a base rate plus 3.50% per annum in which base rate is equal to the highest of (x) Bank of America’s prime rate, (y) the federal funds effective rate plus 0.50% and (z) applicable LIBOR (with minimum LIBOR floor of 2.00%) plus 1.00%. In addition, the Company is required to pay a 0.75% per annum commitment fee on the average daily unused portion of the Exit Revolving Facility. The entire outstanding principal amount of the Exit Credit Agreement Loans is due and payable five years after the Effective Date (the “Exit Maturity Date”); provided that on the third anniversary of the Effective Date, the Company must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a continuation fee of $0.75 million and, on the fourth anniversary of the Effective Date, the Company must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a second continuation fee of $0.75 million. The Exit Credit Agreement requires quarterly repayments of principal of the Exit Term Loan after the first anniversary of the Effective Date. In the second and third years following the Effective Date, such quarterly payments shall each be in an amount equal to $2.5 million; during the fourth year following the Effective Date, such quarterly payments shall each be in an amount equal to $6.25 million; and for the first three quarters during the fifth year following the Effective Date, such quarterly payments shall each be in an amount equal to $12.5 million, with all remaining outstanding amounts owed in respect of the Exit Term Loan being due and payable on the Exit Maturity Date.

     The Exit Credit Agreement Loans are guaranteed by all of the Company’s current and future direct and indirect subsidiaries, other than (x) any subsidiary that is prohibited by applicable law from guaranteeing the obligations under the Exit Credit Agreement Loans and/or providing any security therefor without the consent of a state public utilities commission, and (y) any subsidiary of ours that is a controlled foreign corporation or a subsidiary that is held directly or indirectly by a controlled foreign corporation (the guarantor subsidiaries, together with FairPoint Communications and FairPoint Logistics, are collectively referred to as the “Exit Financing Loan Parties”). The Exit Credit Agreement Loans as a whole are secured by liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties, with first lien and payment waterfall priority for the Exit Revolving Facility and second lien priority for the Exit Term Loan.

     The Exit Credit Agreement contains customary representations, warranties and affirmative covenants. In addition, the Exit Credit Agreement contains restrictive covenants that limit, among other things, the ability of the Company to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock. The Exit Credit Agreement also contains minimum interest coverage and maximum total leverage maintenance covenants, along with a maximum senior leverage covenant measured upon the incurrence of certain types of debt. The Exit Credit Agreement contains certain events of default, including failure to make payments, breaches of covenants and representations, cross defaults to other material indebtedness, unpaid and uninsured judgments, changes of control and bankruptcy events of default. The lenders’ commitments to fund amounts under the Exit Revolving Facility are subject to certain customary conditions.

Certificate of Incorporation and By-laws

     Pursuant to the Plan, on the Effective Date, the Company filed with the Secretary of State of the State of Delaware the Ninth Amended and Restated Certificate of Incorporation of FairPoint Communications and adopted the Second Amended and Restated By-laws (the “By-laws”).

Departure and Appointment of Directors

     Pursuant to the Plan, as of the Effective Date, the following directors ceased to serve on the Company’s board of directors: Thomas F. Gilbane, Jr., Robert S. Lilien, Claude C. Lilly, Jane E. Newman and Michael R. Tuttle.

     As of the Effective Date, the number of directors on the New Board was fixed at eight, with Todd W. Arden, Dennis J. Austin, Edward D. Horowitz, Michael J. Mahoney, Michael K. Robinson, David L. Treadwell and Wayne Wilson becoming members of the New Board and Mr. Horowitz was appointed to serve as chair of the New Board. Paul H. Sunu, the Company’s Chief Executive Officer, became a director of the Company effective as of August 24, 2010 and continues to serve as a director on the New Board.

     In accordance with the By-laws, the initial members of the New Board are expected to hold office until the first annual meeting of stockholders which will be held following the one year anniversary of the Effective Date. Thereafter, members of the New Board are expected to have one-year terms so that their terms will expire at each annual meeting of stockholders.

Registration Rights Agreement

     On the Effective Date, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with Angelo, Gordon & Co., L.P. (“Angelo Gordon”), on behalf of and as investment manager of the persons set forth in the Registration Rights Agreement (together with Angelo Gordon, the “Ten Percent Holders”) that hold in the aggregate at least 10% of our New Common Stock. Under the Registration Rights Agreement, the Ten Percent Holders are entitled to request an aggregate of two registrations of the Ten Percent Holders’ registrable securities; provided that no such rights shall be demanded prior to the expiration of 180 days from the Effective Date. If the Ten Percent Holders in the aggregate hold less than 7.5% of the then outstanding New Common Stock, such holders’ rights under the Registration Rights Agreement shall terminate.

Warrant Agreement

     On the Effective Date, the Company entered into the Warrant Agreement with the Bank of New York Mellon, as Warrant Agent. Pursuant to the Warrant Agreement, the Company issued or will issue the Warrants to purchase an aggregate of 3,582,402 shares of New Common Stock. The number of shares of New Common Stock issuable upon the exercise of the Warrants is subject to adjustment upon the occurrence of certain events described in the Warrant Agreement. The initial exercise price applicable to the Warrants is $48.81 per share of New Common Stock for which the Warrants may be exercised. The exercise price applicable to the Warrants is subject to adjustment upon the occurrence of certain events described in the Warrant Agreement. The Warrants may be exercised at any time on or before the seventh anniversary of the Effective Date. The Warrants, and all rights under the Warrants, are transferable as provided in the Warrant Agreement.

Litigation Trust Agreement

     On the Effective Date, the Company entered into the FairPoint Litigation Trust Agreement (the “Litigation Trust Agreement”) with Mark E. Holliday, as litigation trustee (the “Litigation Trustee”), and the official committee of unsecured creditors appointed in the Chapter 11 Cases, pursuant to which the Litigation Trust was established for the benefit of specified holders of allowed claims and for the pursuit of certain causes of action against Verizon arising in connection with the Agreement and Plan of Merger, dated as of January 15, 2007, by and among Verizon, Spinco and FairPoint Communications, as amended (the “Merger Agreement”). Pursuant to the Plan, the Company transferred such claims and causes of actions against Verizon related to the Merger Agreement to the Litigation Trust with title to such claims and causes of action being free and clear of all liens, charges, claims, encumbrances and interests except for the return to FairPoint Communications of any funds deposited in the Litigation Trust bank account. In addition, pursuant to the Plan, the Company transferred funds to the Litigation Trust to pay the reasonable costs and expenses associated with the administration of the Litigation Trust. Pursuant to the Litigation Trust Agreement, the Litigation Trustee may request additional funding for the Litigation Trust from the Company following the Effective Date; provided, that (i) any such additional funding will be subject to the approval of the New Board in its sole discretion, (ii) after giving effect to such additional funding, the Company’s cash on hand may not be less than $20.0 million (after taking into account the cash distributions to be made) and (iii) no proceeds of any borrowings under the Exit Revolving Facility may be used to fund such additional funding. The Litigation Trustee may prosecute the transferred claims and causes of action against Verizon as described in and authorized by the Plan and the Litigation Trust Agreement, make timely and appropriate distributions to the beneficiaries of the Litigation Trust and otherwise carry out the provisions of the Litigation Trust Agreement. During June 2011, the money in the Litigation Trust account was distributed to the trustee and is no longer held by the Company at June 30, 2011.

Long Term Incentive Plan and Success Bonus Plan

     As contemplated by the Plan, on the Effective Date, the Company was deemed to have adopted the Long Term Incentive Plan and the Success Bonus Plan.

     On the Effective Date, in accordance with the Plan, (i) certain of the Company’s employees and a consultant of the Company received (a) Success Bonuses of approximately $1.8 million in the aggregate pursuant to the terms of the Success Bonus Plan and/or (b) New Common Stock awards, consisting of restricted shares of New Common Stock and/or options to purchase shares of New Common Stock, pursuant to the terms of the Long Term Incentive Plan, and (ii) members of the New Board received restricted shares of New Common Stock and options to purchase New Common Stock pursuant to the terms of the Long Term Incentive Plan. The Success Bonuses were earned by the Company’s employees and were primarily based upon achieving certain performance measures. 3,134,603 shares of New Common Stock are reserved for awards under the Long Term Incentive Plan, of which stock options and restricted share awards were granted to certain of the Company’s employees, a consultant of the Company, and members of the New Board on the Effective Date. Specifically, on the Effective Date, (a) 460,294 shares of stock were distributed to management-level and other employees and a consultant of the Company, with 120,000 restricted shares issued to the Company’s Chief Executive Officer, 34,000 restricted shares issued to the Company’s Chief Financial Officer, 161,800 restricted shares issued to other members of the Company’s senior management and 66,794 unrestricted shares issued to David L. Hauser, the Company’s former Chief Executive Officer, who was a consultant through the Effective Date, (b) 87,498 shares of restricted stock were awarded to the members of the New Board and (c) stock options were granted with an exercise price of $24.29 for the purchase of (1) 859,000 shares of New Common Stock by management-level and other employees, with 125,000 options to purchase New Common Stock granted to the Company’s Chief Executive Officer, 42,000 options to purchase New Common Stock granted to the Company’s Chief Financial Officer and 236,500 options to purchase New Common Stock granted to other members of the Company’s senior management and (2) 132,012 shares of New Common Stock by members of the New Board. Except for the unrestricted shares awarded to David L. Hauser, these stock option and restricted share awards vested to the extent of 25% on the Effective Date, and the remainder of these awards is expected to vest in three equal annual installments, commencing on the first anniversary of the Effective Date, with accelerated vesting upon (x) a change in control, or (y) a termination of an award holder’s employment either without cause (but only to the extent the vesting becomes at least 50%, plus an additional 25% for each year of the award holder’s employment after the first year after the Effective Date) or due to the award holder’s death or disability (but, for stock options, only to the extent vesting would have otherwise occurred within one year following such termination of employment). Mr. Hauser’s shares were 100% vested on the Effective Date.

Regulatory Settlements

     In connection with the Chapter 11 Cases, the Company negotiated with representatives of the state regulatory authorities in each of Maine, New Hampshire and Vermont with respect to (i) certain regulatory approvals relating to the Chapter 11 Cases and the Plan and (ii) certain modifications to the requirements imposed by state regulatory authorities as a condition to approval of the Merger (each a “Merger Order,” and collectively, the “Merger Orders”). The Company agreed to regulatory settlements with the representatives for each of Maine, New Hampshire and Vermont regarding modification of each state’s Merger Order (each a “Regulatory Settlement,” and collectively, the “Regulatory Settlements”) which have since been approved by the regulatory authorities in these states.

Reporting Requirements

     In connection with the Chapter 11 Cases, regardless of the Effective Date having occurred, the Company is required to continue to file quarterly operating reports with the Bankruptcy Court until the Chapter 11 Cases have closed. Such reports have been and will be prepared according to requirements of federal bankruptcy law and related rules. While these reports accurately provide then-current information required under the Bankruptcy Code, they are nonetheless unaudited, are prepared in a format different from that used in our consolidated financial statements filed under the securities laws and certain of this financial information may be prepared on an unconsolidated basis. Accordingly, The Company believes that the substance and format of these reports do not allow meaningful comparison with our regular publicly-disclosed consolidated financial statements. Moreover, the quarterly operating reports filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to our securities, or for comparison with other financial information filed by the Company with the SEC.

Plan Injunction

     Except as otherwise provided in the Plan, the Confirmation Order enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against the Company or its properties to recover on, collect or secure a claim arising prior to the Effective Date. Thus, for example, creditor actions to obtain possession of property from the Company, or to create, perfect or enforce any lien against our property, or to collect on monies owed or otherwise exercise rights or remedies with respect to a claim arising prior to the Effective Date are enjoined except as provided in the Plan.

Impact on Net Operating Loss Carryforwards (“NOLs”)

     The Company’s NOLs were substantially reduced by the recognition of gains on the discharge of certain debt pursuant to the Plan. Further, the Company’s ability to utilize its NOL carryforwards will be limited by Section 382 of the Internal Revenue Code of 1986, as amended, as the debt restructuring resulted in an ownership change. In general, following an ownership change, a limitation is imposed on the amount of pre-ownership change NOL carryforwards that may be used to offset taxable income in each year following the ownership change. The Company plans to elect, pursuant to a special rule that is applicable to ownership changes resulting from a Chapter 11 reorganization, to calculate this annual limitation by increasing the value attributed to the Company’s stock prior to the ownership change by the amount of creditor claims surrendered or canceled during the reorganization. Specifically, the amount of the annual limitation would equal the “long-term tax-exempt rate” (published monthly by the Internal Revenue Service (the “IRS”)) for the month in which the ownership change occurs, which in the Company’s case is 4.10%, multiplied by the lesser of (i) the value of the Company’s stock immediately after, rather than immediately before, the ownership change, and (ii) the value of the Company’s pre-change assets. Any increase in the value attributed to the Company’s stock resulting from the ownership change effectively would increase the annual limitation on our NOLs.

     Any portion of the annual limitation on pre-ownership change NOLs that is not used to reduce taxable income in a particular year may be carried forward and used in subsequent years. The annual limitation is increased by certain built-in gains recognized (or treated as recognized) during the five years following the ownership change (up to the total amount of built-in gain that existed at the time of the ownership change). The Company expects the limitations on NOL carryforwards for the five years following an ownership change to be increased by built-in gains. The Company currently projects that all available NOL carryforwards, after giving effect to the reduction for debt discharged, will be utilized to offset future income within the NOL carryforward periods. Therefore, the Company does not expect to have NOL carryforwards after such time.

Financial Reporting in Reorganization

     The Reorganizations Topic of 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 condensed consolidated financial statements have been prepared in accordance with the Reorganizations Topic of the ASC through the Effective Date. All pre-petition liabilities subject to compromise have been segregated in the condensed 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 condensed consolidated statements of operations for the twenty-four days ended January 24, 2011 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.

     Upon the Effective Date, the Company adopted fresh start accounting in accordance with guidance under the applicable reorganization accounting rules, pursuant to which the Company’s reorganization value, which represents the fair value of the entity before considering liabilities, and approximates the amount a willing buyer would pay for the assets of the entity immediately after the reorganization, has been allocated to the fair value of assets in conformity with guidance under the applicable accounting rules for business combinations, using the purchase method of accounting for business combinations. The amount remaining after allocation of the reorganization value to the fair value of identified tangible and intangible assets has been reflected as goodwill, which is subject to periodic evaluation for impairment. In addition to fresh start accounting, the Company’s future consolidated financial statements will reflect all effects of the transactions contemplated by the Plan. Accordingly, the Company’s future consolidated statements of financial position and consolidated statements of operations will not be comparable in many respects to the Company’s consolidated statements of financial position and consolidated statements of operations for periods prior to the adoption of fresh start accounting and prior to accounting for the effects of the reorganization.

Reorganization Items

     Reorganization items represent expense or income amounts that have been recognized as a direct result of the Chapter 11 Cases and are presented separately in the condensed consolidated statements of operations pursuant to the Reorganizations Topic of the ASC. Such items consist of the following (amounts in thousands):

	Predecessor Company
	Twenty-Four		Three Months		Six Months
	Days Ended		Ended		Ended
	January 24, 2011		June 30, 2010		June 30, 2010
			(Restated)		(Restated)
Professional fees (a)	$	(13,965)	$	(18,788)	$	(33,527)
Success bonus (b)		—		(1,060)		(1,935)
Non-cash allowed claim adjustments (c)		—		—		(977)
Cancellation of debt income (d)		1,351,057		21,223		21,223
Goodwill adjustment (e)		(339,153)		—		—
Intangible assets adjustment (e)		(30,381)		—		—
Property, plant and equipment adjustment (e)		(69,036)		—		—
Pension and post-retirement healthcare adjustment (e)		22,076		—		—
Other assets and liabilities adjustment (e)		(16,037)		—		—
Tax account adjustments (e)		4,313		—		—
Other (f)		(11,561)		—		—
Total reorganization items	$	897,313	$	1,375	$	(15,216)

(a) Professional fees relate to legal, financial advisory and other professional costs directly associated with the reorganization process.

(b) Success bonus represents charges incurred relating to the Success Bonus Plan in accordance with the plan of reorganization.

(c) The carrying values of certain liabilities subject to compromise were adjusted to the value of the claim allowed by the Bankruptcy Court.

(d) Net gains and losses associated with the settlement of liabilities subject to compromise.

(e) Revaluation of long lived assets and certain assets and liabilities upon adoption of fresh start accounting.

(f) Includes expenses associated with the Long Term Incentive Plan, the Litigation Trust and the write-off of the predecessor company’s long-term incentive performance plan and director and officer policy.

     Professional fees directly associated with the reorganization process that have been incurred after the Effective Date are included in operating expenses as Reorganization related expense in the condensed consolidated statement of operations.

     Liabilities Subject to Compromise

     Liabilities subject to compromise refer to liabilities incurred prior to the Petition Date for which the Company has not received approval from the Bankruptcy Court to pay or otherwise honor. The amounts of the various categories of liabilities that are subject to compromise are set forth below. These amounts represent the estimates of known or potential Pre-Petition Date claims that are likely to be resolved in connection with the Chapter 11 Cases.

     At the Effective Date, all liabilities subject to compromise were either settled through issuance of cash, shares of New Common Stock or Warrants, or were included in the Company’s claims payable and estimated claims accrual (the “Claims Reserve”). As such, as of the Effective Date, no liabilities remain subject to compromise. Liabilities subject to compromise at December 31, 2010 consisted of the following (amounts in thousands):

	Predecessor Company
	December 31, 2010
Senior secured credit facility	$	1,970,963
Senior Notes		549,996
Interest rate swap		98,833
Accrued interest		211,550
Accounts payable		57,640
Other accrued liabilities		16,129
Other long-term liabilities		200
Liabilities subject to compromise	$	2,905,311

     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.

     Magnitude of Potential Claims

     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 August 9, 2011, claims totaling $4.9 billion have been filed with the Bankruptcy Court against the Company, $2.8 billion of which have been settled and $1.1 billion of which have been disallowed by the Bankruptcy Court. Additionally, $6.2 million of these claims have been withdrawn by the respective creditors and $1.0 billion of these claims remain open, pending settlement or objection. The Company expects the majority of these pending claims to be disallowed. 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. 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 satisfy $2.8 billion of claims. In addition, on the Effective Date, the Company established a cash reserve to pay outstanding bankruptcy claims and various other bankruptcy related fees (the “Cash Claims Reserve”) of $82.8 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 Cash Claims Reserve and issued additional shares of New Common Stock to satisfy claims as they are resolved. As a result of these distributions, the Cash Claims Reserve as of August 9, 2011, has been decreased to $34.4 million. As of August 9, 2011, 70,296 shares of New Common Stock and Warrants to purchase 119,821 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 are being 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 will take considerable time to complete. 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.

Fresh Start Accounting

     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 were applied on the Effective Date pursuant to the provisions of the Reorganizations Topic of the ASC. The adoption of fresh start accounting results in a new reporting entity. 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. All periods as of and after the Effective Date are referred to as the Successor Company, whereas all periods preceding the Effective Date are referred to as the Predecessor Company. With the exception of deferred taxes and assets and liabilities associated with pension and post-retirement health plans, which are recorded in accordance with the Income Taxes Topic of the ASC and the Compensation Topic of the ASC, respectively, all Successor Company assets and liabilities are recorded at their estimated fair values upon the Effective Date and the Predecessor Company’s retained deficit and accumulated other comprehensive income are eliminated. Any presentation of the Successor Company represents the financial position and results of operations of the new reporting entity and is not comparable to prior periods.

     Under the Reorganization Topic of the ASC, the Company was required to apply the provisions of fresh start accounting to its financial statements because (i) the reorganization value of the assets of the emerging entity immediately before the date of confirmation was less than the total of all post-petition liabilities and allowed claims and (ii) the holders of the existing voting shares of the predecessor’s common stock immediately before confirmation received less than 50 percent of the voting shares of the emerging entity.

     In accordance with fresh start accounting, which incorporates the acquisition method of accounting for business combinations in the Business Combinations Topic of the ASC, the Company recorded the assets and non-interest bearing liabilities at fair value, with the exception of deferred taxes and assets and liabilities associated with pension and post-retirement health plans, which were recorded in accordance with the Income Taxes Topic of the ASC and the Compensation Topic of the ASC, respectively. The Company also recorded the Successor Company debt and equity at fair value utilizing the total enterprise value of approximately $1.5 billion, which was determined in conjunction with the confirmation of the Plan in part based on a set of financial projections for the Successor Company. The enterprise value is dependent upon achieving the future financial results set forth in the Company’s projections, as well as the realization of certain other assumptions. There can be no assurance that the projections will be achieved or that the assumptions will be realized.

     The implementation of the Plan and the adoption of fresh start accounting in the Company’s consolidated balance sheet as of January 24, 2011 are as follows:

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
Reorganized Condensed Consolidated Balance Sheet
As of January 24, 2011
(Unaudited)
(in thousands, except share data)

	Predecessor		Reorganization			Fresh Start
	Company		Adjustments (a)			Adjustments (b)			Successor Company
Assets
Current assets:
Cash	$	101,703		(91,441)	(c)		—		$	10,262
Restricted cash		2,386		82,764	(c)		—			85,150
Accounts receivable, net		129,308		—			—			129,308
Materials and supplies		24,776		—			(24,098)	(l)		678
Prepaid expenses		17,152		—			(2,347)			14,805
Other current assets		8,620		—			(4,247)			4,373
Deferred income tax, net		31,400		—			—			31,400
Total current assets		315,345		(8,677)			(30,692)			275,976
Property, plant, and equipment net		1,852,508		—			(28,838)	(f)(l)		1,823,670
Goodwill		595,120		—			(351,931)	(i)		243,189
Intangible assets, net		187,791		—			(30,381)	(g)		157,410
Prepaid pension asset		3,053		—			363	(h)		3,416
Debt issue costs, net		—		2,366	(d)		—			2,366
Restricted cash		1,678		—			—			1,678
Other assets		13,040		—			(3,874)	(l)		9,166
Total assets	$	2,968,535		(6,311)			(445,353)		$	2,516,871
Liabilities and Stockholders’ Equity (Deficit)
Liabilities not subject to compromise:
Current portion of long-term debt	$	—		—			—		$	—
Current portion of capital lease obligations		1,233		—			—			1,233
Accounts payable		98,674		(23,735)			—			74,939
Claims payable and estimated claims accrual		—		94,292	(c)		—			94,292
Other accrued liabilities		61,065		(1,800)	(c)		(4,457)	(h)		54,808
Total current liabilities		160,972		68,757			(4,457)			225,272
Capital lease obligations		3,831		—			—			3,831
Accrued pension obligation		93,033		—			(7,905)	(h)		85,128
Employee benefit obligations		346,853		—			(13,599)	(h)		333,254
Deferred income taxes		56,408		331,493	(j)		(40,124)	(j)		347,777
Unamortized investment tax credits		4,313		—			(4,313)	(j)		—
Other long-term liabilities		12,079		(2,094)	(c)		13,138			23,123
Long-term debt, net of current portion		—		1,000,000	(d)		—			1,000,000
Total long-term liabilities		516,517		1,329,399			(52,803)			1,793,113
Total liabilities not subject to compromise		677,489		1,398,156			(57,260)			2,018,385
Liabilities subject to compromise		2,910,952		(2,910,952)			—			—
Total liabilities		3,588,441		(1,512,796)			(57,260)			2,018,385
Stockholders’ equity (deficit):
Predecessor Company common stock		894		(894)			—			—
Additional paid-in capital, Predecessor Company		725,804		(725,804)			—			—
Successor Company common stock		—		257	(i)		—			257
Additional paid-in capital, Successor Company		—		498,229	(i)		—			498,229
Retained deficit		(1,134,293)		1,734,697	(e)		(600,404)	(k)		—
Accumulated other comprehensive loss		(212,311)		—			212,311			—
Total stockholders’ equity (deficit)		(619,906)		1,506,485			(388,093)			498,486
Total liabilities and stockholders’ equity (deficit)	$	2,968,535		(6,311)			(445,353)		$	2,516,871

(a) Represents amounts recorded for the implementation of the Plan on the Effective Date. This includes the settlement of liabilities subject to compromise, distributions of cash, authorization and partial distribution of shares of New Common Stock and Warrants, designation of restricted cash to satisfy allowed claims and the cancellation of predecessor Old Common Stock resulting in a pre-tax gain of approximately $1,351.0 million on extinguishment of obligations pursuant to the Plan and the related tax effects. The following reflects the calculation of the pre-tax gain (in thousands, unaudited):

Liabilities subject to compromise	$	2,910,952
Less: Transfer to claims reserve		(66,893
Remaining liabilities subject to compromise		2,844,059
Less: Issuance of debt and equity
New long-term debt		(1,000,000)
Successor common stock (at par value)		(251)
Successor additional paid-in capital		(476,403)
Successor warrants		(16,350)
Pre-tax gain from cancellation and satisfaction of predecessor debt	$	1,351,055

(b)	Represents the adjustments of assets and liabilities to fair value or other measurement in conjunction with adoption of fresh start accounting.
(c)	Records the Claims Reserve and the Cash Claims Reserve restricted for satisfaction of the reserve. The following reflects the components of the Claims Reserve (in thousands, unaudited):

Liabilities subject to compromise to be satisfied in cash	$	66,893
Professional and restructuring fees		24,601
Other		9,894
Claims Reserve before emergence date payments		101,388
Less: Professional and restructuring fee payments		(7,096	)
Claims Reserve at emergence	$	94,292

The decrease in cash of $91.4 million at emergence is comprised of a reclassification of $82.8 million of operating cash to the Cash Claims Reserve within restricted cash to satisfy the Claims Reserve, $1.5 million of fees paid relating to debt financing and cash payments of $7.1 million for professional and restructuring fees. Tax claims were included in the Claims Reserve but were not included in the Cash Claims Reserve, because they were not required to be so included.

(d)

Records the issuance of senior secured debt and related debt financing. Debt issuance costs of $2.4 million ($1.5 million paid in cash on the Effective Date) related to the Exit Credit Agreement Loans are recorded in Debt issue costs, net and will be amortized over the terms of the respective agreements.

(e) Reflects the cumulative impact of the reorganization adjustments (in thousands, unaudited):

Pre-tax gain from cancellation and satisfaction of predecessor debt	$	1,351,055
Income tax impact		(331,495)
Other		(11,561)
Total impact on condensed consolidated statement of operations	$	1,007,999
Cancellation of predecessor common stock and additional paid-in capital		726,698
Total reorganization adjustments	$	1,734,697

(f) Reflects the fair values of property, plant and equipment in connection with fresh start accounting. Fair value estimates were based on the following valuation methods:

• Land was valued using a combination of the market approach, which was primarily based on pertinent local sales and listings data, and the indirect cost approach, in which market trending indices were applied to the historical capital cost.

• Other real property such as buildings, building improvements and leasehold improvements were valued using either: (1) current market cost to construct improvements where information regarding size, age, construction type, etc. was available and (2) current market trending indices applied to historical capital costs where such detailed information was not available.

• Network assets (including central office and outside communications plant equipment) were valued using a combination of the direct replacement cost approach to value outside communications plant assets and an indirect cost approach in which current market trending indices were applied to the historical capital cost.

• Other personal property such as furniture, fixtures and other equipment were valued using a combination of a “percent of cost” market approach and an indirect cost approach based on replacement costs and current market trending indices.

	The indices utilized are selected from industry accepted and published cost indices including the Bureau of Labor Statistics, Marshall Valuation Service, Consumer Price Indices, NACREIF Property Index and AUS Telephone Plant Index.
(g)	Reflects the fair value of identifiable intangible assets in connection with fresh start accounting. The Company recognized a $99.0 million customer list intangible asset, a $58.0 million trade name intangible asset related to the FairPoint Communications trade name and a $0.4 million favorable leasehold agreement intangible asset.

• The customer list asset was valued based on a cost method which utilized average cost to acquire a new line multiplied by the number of existing lines within the FairPoint network.

• The trade name was valued based on the relief-from-royalty method which utilized projected revenue (excluding wholesale revenue), the royalty rate that would be charged by an asset licensor to an unrelated licensee, and a discount rate.

(h) An adjustment of $22.1 million (net) was recorded to measure the pension and other postretirement employee benefit obligations as of the Effective Date. This adjustment primarily reflects the change in the weighted average discount rate applied to projected benefit obligations from the prior measurement date to the Effective Date. The discount rates applied to projected obligations changed as follows:

	January 24,			December 31,
	2011			2010
Pension Discount Rate — Management		5.22	%		5.07	%
Pension Discount Rate — Associate		5.84	%		5.64	%
Post-retirement Healthcare Discount Rate — Management		5.64	%		5.45	%
Post-retirement Healthcare Discount Rate — Associate		5.85	%		5.65	%

(i) Reconciliation of enterprise value to the reorganization value of FairPoint assets, determination of goodwill and reconciliation of reorganization value of FairPoint assets to the Successor Company equity (in thousands, unaudited):

Business Enterprise Value	$	1,498,486
Plus: Non-debt liabilities		1,018,385
Reorganization Value of FairPoint Assets	$	2,516,871
Fair value of FairPoint assets (excluding goodwill)		(2,273,682)
Reorganization Value in Excess of Fair Value (Goodwill)	$	243,189

During the second quarter of 2011, the Company made a reclassification adjustment to Property, Plant and Equipment related to fresh start accounting, which reduced goodwill by $12.8 million to $243.2 million.

Reorganization Value of FairPoint Assets	$	2,516,871
Less: Non-debt liabilities		(1,018,385)
Debt		(1,000,000)
New Common Stock ($257) and Additional Paid-in- Capital ($498,229)	$	498,486

(j)	Reflects the re-measurement of the Company’s deferred tax assets and liabilities, unrecognized tax benefits and other tax related accounts as a result of implementing the plan of reorganization and fresh start accounting in accordance with accounting guidance.
(k)	Reflects the adjustment of assets and liabilities to fair value or other measurement as specified in accounting guidance related to business combinations as follows (in thousands, unaudited):

Elimination of predecessor goodwill	$	595,120
Elimination of predecessor intangible assets		187,791
Property, plant and equipment adjustment		56,258
Successor unfavorable agreement liabilities		13,690
Successor intangible assets		(157,410)
Successor goodwill		(243,189)
Pension and post-retirement health actuarial gain		(22,076)
Income tax impact		(40,124)
Other adjustments		(1,967)
Total impact on condensed consolidated statement of operations	$	388,093
Elimination of accumulated other comprehensive loss		212,311
Total fair value adjustments and elimination of predecessor accumulated other comprehensive loss	$	600,404

(l) In conjunction with fresh start accounting, management of the Successor Company has changed its accounting policy to classify certain items relating to future use in capital projects with property, plant and equipment. As a result of this change in policy, management reclassified $24.1 million from materials and supplies and $3.3 million from other long-term assets to property, plant and equipment.

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Earnings Per Share

5 Months Ended

Jun. 30, 2011

Earnings Per Share [Abstract]

Earnings Per Share

(10) Earnings Per Share

     Earnings per share has been computed in accordance with the Earnings Per Share Topic of the ASC. On the Effective Date, the Company adopted the Long Term Incentive Plan and entered into the Warrant Agreement. Awards pursuant to these agreements were evaluated for qualification as participating securities for inclusion in the calculation of basic earnings per share under the two-class method. It was determined that restricted shares of common stock under the Long Term Incentive Plan do qualify as participating securities although holders of these awards do not have a contractual obligation to share in losses of the Company. Accordingly, in a loss position, basic earnings per share of the Company is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. In an income position, basic earnings per share of the Company is computed by dividing net income by the weighted average number of shares of common stock outstanding and participating securities for the period. Except when the effect would be anti-dilutive, the diluted earnings per share calculation calculated using the treasury stock method includes the impact of stock units, shares of non-vested common stock and shares that could be issued under outstanding stock options.

     The following table provides a reconciliation of the common shares used for basic earnings per share and diluted earnings per share (in thousands):

	Successor		Predecessor		Successor
	Company		Company		Company		Predecessor Company
					One
					Hundred
	Three Months		Three		Fifty-Seven		Twenty-Four Days		Six Months
	Ended		Months		Days Ended		Ended		Ended
	June 30, 2011		June 30, 2010		June 30, 2011		January 24, 2011		June 30, 2010
			(Restated)						(Restated)
Weighted average number of common shares used for basic earnings per share		25,652		89,424		25,644		89,424		89,424
Effect of potential dilutive shares		—		—		—		271		—
Weighted average number of common shares and potential dilutive shares used for diluted earnings per share		25,652		89,424		25,644		89,695		89,424
Anti-dilutive shares excluded from the above reconciliation		5,006		2,535		5,006		712		2,535

     Weighted average number of common shares used for basic earnings per share excludes 543,641, 545,386, 16,666, 565,476 and 565,476 shares of restricted non-vested stock as of the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June, 30, 2010, respectively. Since the Company incurred a loss for the three months ended June 30, 2011, the 157 days ended June 30, 2011 and the three and six months ended June 30, 2010, all potentially dilutive securities are anti-dilutive for these periods and are, therefore, excluded from the determination of diluted earnings per share.

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Accounting Policies

5 Months Ended

Jun. 30, 2011

Accounting Policies [Abstract]

Accounting Policies

(3) Accounting Policies

     In accordance with fresh start accounting, all assets and non-interest bearing liabilities were recorded at fair value on the Effective Date. Subsequent to being recorded at fair value, except for certain materials and supplies as noted above, these assets and liabilities continued to be accounted for in the manner in which they were accounted for prior to the Effective Date.

(a) Presentation and Use of Estimates

     The accompanying condensed 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. Actual results could differ from those estimates. The condensed consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The Company has reclassified certain prior period amounts in the condensed consolidated financial statements to be consistent with current period presentation. These reclassifications were made to correct the classification of performance assurance plans (“PAP”) penalties from selling, general and administrative expenses to contra-revenue and to correct the allocation of certain employee and general computer expenses between cost of services and selling, general and administrative expenses. Correction of these classification errors resulted in a decrease of $0.1 million and $0.9 million, respectively, to revenue, an increase of $2.4 million and $2.2 million, respectively, to cost of services, and a decrease of $2.5 million and $3.2 million, respectively, to selling, general and administrative expenses for the three and six months ended June 30, 2010. Correction of these classification errors had no impact on loss from operations or net loss.

     Examples of significant estimates include the allowance for doubtful accounts, revenue reserves, the recoverability of property, plant and equipment, valuation of intangible assets, pension and post-retirement benefit assumptions and income taxes. In addition, estimates have been made in determining the amounts and classification of certain liabilities subject to compromise.

(b) Revenue Recognition

     Revenues are recognized as services are rendered and are primarily derived from the usage of the Company’s networks and facilities or under revenue-sharing arrangements with other communications carriers. Revenues are primarily derived from: access, pooling, voice services, Universal Service Fund receipts, Internet and broadband services, and other miscellaneous services. Local access charges are billed to local end users under tariffs approved by each state’s Public Utilities Commission (“PUC”). Access revenues are derived for the intrastate jurisdiction by billing access charges to interexchange carriers and to other local exchange carriers (“LECs”). These charges are billed based on toll or access tariffs filed with the local state’s PUC. Access charges for the interstate jurisdiction are billed in accordance with tariffs filed by the National Exchange Carrier Association or by the individual company and filed with the Federal Communications Commission (the “FCC”).

     Revenues are determined on a bill-and-keep basis or a pooling basis. If on a bill-and-keep basis, the Company bills the charges to either the access provider or the end user and keeps the revenue. If the Company participates in a pooling environment (interstate or intrastate), the toll or access billed is contributed to a revenue pool. The revenue is then distributed to individual companies based on their company-specific revenue requirement. This distribution is based on individual state PUCs’ (intrastate) or the FCC’s (interstate) approved separation rules and rates of return. Distribution from these pools can change relative to changes made to expenses, plant investment, or rate-of-return. Some companies participate in federal and certain state universal service programs that are pooling in nature but are regulated by rules separate from those described above. These rules vary by state. Revenues earned through the various pooling arrangements are initially recorded based on the Company’s estimates.

     Long distance retail and wholesale services can be recurring due to coverage under an unlimited calling plan or usage sensitive. In either case, they are billed in arrears and recognized when earned. Internet and data services revenues are substantially all recurring revenues and are billed one month in advance and deferred until earned.

     As of June 30, 2011 and December 31, 2010, unearned revenue of $16.6 million and $15.3 million, respectively, was included in other accrued liabilities on the condensed consolidated balance sheet. The majority of the Company’s miscellaneous revenue is provided from billing and collection and directory services. The Company earns revenue from billing and collecting charges for toll calls on behalf of interexchange carriers. The interexchange carrier pays a certain rate per each minute billed by the Company. The Company recognizes revenue from billing and collection services when the services are provided.

     Internet and broadband services and certain other services are recognized in the month the service is provided.

     Non-recurring customer activation fees, along with the related costs up to, but not exceeding, the activation fees, are deferred and amortized over the customer relationship period.

     Service quality index (“SQI”) penalties and certain PAP penalties are recorded as a reduction to revenue. SQI penalties for Maine, New Hampshire and Vermont are recorded to other accrued liabilities on the consolidated balance sheets. PAP penalties for Maine and New Hampshire are recorded as a reduction to accounts receivable since these penalties are paid by the Company in the form of credits applied to the Competitive Local Exchange Carrier (“CLEC”) bills. PAP penalties in Vermont are recorded to other accrued liabilities as a majority of these penalties are paid to the Vermont Universal Service Fund, while the remaining credits assessed in Vermont are paid by the Company in the form of credits applied to CLEC bills.

     Revenue is recognized net of tax collected from customers and remitted to governmental authorities.

     Management makes estimated adjustments, as necessary, to revenue or accounts receivable for billing errors, including certain disputed amounts.

(c) Restricted Cash

     As of June 30, 2011, the Company had $35.8 million of restricted cash from which outstanding bankruptcy claims and various other bankruptcy related fees will be paid, $2.0 million of restricted cash for removal of dual poles in Vermont and $0.7 million of cash restricted for other purposes.

     In total, the Company had $38.5 million of restricted cash at June 30, 2011 of which $37.5 million is shown in current assets and $1.0 million is shown as a non-current asset on the condensed consolidated balance sheet.

(d) Materials and Supplies

     Prior to the Effective Date, materials and supplies included new and reusable supplies and network equipment, which were stated principally at average original cost, except that specific costs were used in the case of large individual items.

     Materials and supplies of the Successor Company consist of finished goods and are stated at the lower of cost or market value. Cost is determined using either an average original cost or specific identification method of valuation.

(e) Property, Plant and Equipment

     Prior to the Effective Date, property, plant and equipment of the Predecessor Company was recorded at cost. Depreciation expense was principally based on the composite group remaining life method and straight-line composite rates. This method provides for the recognition of the cost of the remaining net investment in telephone plant, property and equipment less anticipated positive net salvage value, over the remaining asset lives. This method requires the periodic revision of depreciation rates.

     When depreciable telephone plant used in the Company’s wireline network is replaced or retired, the carrying amount of such plant is deducted from the respective accounts and charged to accumulated depreciation. No gain or loss is recognized on disposition of assets.

     Network software purchased or developed in connection with related plant assets is capitalized. The Company also capitalizes interest associated with the acquisition or construction of network related assets. Capitalized interest is reported as part of the cost of the network related assets and as a reduction in interest expense.

     In connection with the Company’s adoption of fresh start accounting on the Effective Date, property, plant and equipment assets were revalued to their fair value, generally their appraised value after considering economic obsolescence, and new remaining useful lives were established. Accumulated depreciation was reset to zero. The appraisals assigned remaining useful lives to each asset ranging from two to twenty-three years. The revalued assets will be depreciated over these estimated remaining useful lives under the same method utilized for the Predecessor Company assets.

     Property additions after the Effective Date are recorded and depreciated in a manner consistent with the Predecessor Company utilizing the estimated asset lives presented in the following table:

	Average Life
Category	(In Years)
Buildings		45
Central office equipment		5 – 11
Outside communications plant
Copper cable		15 – 18
Fiber cable		25
Poles and conduit		30 – 50
Furniture, vehicles and other		3 – 15

     The Company believes that current estimated useful asset lives are reasonable, although they are subject to regular review and analysis. In the evaluation of asset lives, multiple factors are considered, including, but not limited to, the ongoing network deployment, technology upgrades and enhancements, planned retirements and the adequacy of reserves.

(f) Computer Software and Interest Costs

     The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software which has a useful life in excess of one year in accordance with the Intangibles-Goodwill and Other Topic of the ASC. Capitalized costs include direct development costs associated with internal use software, including direct labor costs and external costs of materials and services.

     Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred.

     In addition, the Company capitalizes the interest cost associated with the period of time over which the Company’s internal use software is developed or obtained in accordance with the Interest Topic of the ASC. The Company did not capitalize interest costs incurred during the pendency of the Chapter 11 Cases, as payments on all interest obligations were stayed as a result of the filing of the Chapter 11 Cases. Upon entry into the Exit Credit Agreement on the Effective Date, the Company resumed capitalization of interest costs.

     During the three months ended June 30, 2011, the 157 days ended June 30, 2011 and the 24 days ended January 24, 2011, the Company capitalized $4.4 million, $8.5 million and $1.3 million, respectively, in software costs and less than $0.1 million in interest costs.

(g) Debt Issue Costs

     The Company entered into the DIP Credit Agreement on October 27, 2009. The Company incurred $0.9 million of debt issue costs associated with the DIP Credit Agreement and began to amortize these costs over the nine-month life of the DIP Credit Agreement using the effective interest method. Concurrent with the final order of the Bankruptcy Court, dated March 11, 2010 (the “Final DIP Order”), the Company incurred an additional $1.1 million of debt issue costs associated with the DIP Credit Agreement and began to amortize these costs over the remaining life of the DIP Credit Agreement using the effective interest method. On October 22, 2010, the Company incurred an additional $0.4 million of debt issue costs to extend the DIP Credit Agreement through January 2011. The Company has amortized these costs over the extended life of the DIP Credit Agreement.

     On the Effective Date, the Company entered into the Exit Credit Agreement. The Company incurred $2.4 million of debt issue costs associated with the Exit Credit Agreement and began to amortize these costs over a weighted average life of 3.7 years using the effective interest method.

     As of June 30, 2011 and December 31, 2010, the Company had capitalized debt issue costs of $2.1 million and $0.1 million, respectively, net of amortization.

(h) Goodwill and Other Intangible Assets

     As of December 31, 2010, goodwill consisted of the difference between the purchase price incurred in the acquisition of Legacy FairPoint (FairPoint Communications, Inc. exclusive of the local exchange business acquired from Verizon and its subsidiaries after giving effect to the Merger (the “Northern New England operations”)), using the purchase method of accounting and the fair value of net assets acquired. Upon the Effective Date, goodwill consists of the difference between the reorganization value of the predecessor company and the fair value of net assets using the acquisition method of accounting for business combinations in the Business Combinations Topic of the ASC. In accordance with the Intangibles — Goodwill and Other Topic of the ASC, goodwill is not amortized, but is assessed for impairment at least annually.

     Goodwill impairment is determined using a two-step process. Step one compares the estimated fair value of the Company’s single wireline reporting unit (calculated using both the market approach and the income approach) to its carrying amount, including goodwill. The market approach compares the fair value of the Company, as measured by its market capitalization, to the carrying amount of the Company, which represents its stockholders’ equity balance. Effective January 1, 2011, step one of the goodwill impairment test was amended for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform step two of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist.

     Step two compares the implied fair value of the Company’s goodwill (i.e., the fair value of the Company less the fair value of the Company’s assets and liabilities, including identifiable intangible assets) to its goodwill carrying amount. If the carrying amount of the Company’s goodwill exceeds the implied fair value of the goodwill, the excess is required to be recorded as an impairment.

     During this assessment, management relies on a number of factors, including operating results, business plans and anticipated future cash flows. The Company performed step one of its annual goodwill impairment assessment as of October 1, 2010 and concluded that there was no impairment at that time.

     Given that the significant decline in the Company’s stock price since the Effective Date has caused its market capitalization to be below its book value, the Company reviewed indicators of impairment specified by the Intangibles — Goodwill and Other Topic of the ASC and concluded that it does not believe a triggering event has occurred. Therefore, an interim goodwill impairment test is not warranted at June 30, 2011. If this condition continues, it could imply that our goodwill may not be recoverable, thereby requiring an interim impairment test at September 30, 2011 or future periods that may result in a non-cash write-down of goodwill, which could have a significant adverse impact on our results of operations.

     During the second quarter of 2011, the Company made a reclassification adjustment to Property, Plant and Equipment based on fresh start accounting guidance, which reduced goodwill by $12.8 million. As of June 30, 2011 and December 31, 2010, the Company had goodwill of $243.2 million and $595.1 million, respectively.

     In connection with the Company’s adoption of fresh start accounting on the Effective Date, intangible assets and related accumulated amortization of the Predecessor Company were eliminated. Intangible assets of the Successor Company were identified and valued at their fair value, as determined by valuation specialists. The Company’s intangible assets are as follows (in thousands):

	Successor			Predecessor
	Company			Company
	At			At
	June 30,			December 31,
	2011			2010
Customer lists (weighted average 9.0 years and 9.7 years for Successor Company and Predecessor Company, respectively):
Gross carrying amount	$	99,000		$	208,504
Less accumulated amortization		(5,417	)		(62,073)
Net customer lists		93,583			146,431
Trade name (indefinite life):
Gross carrying amount		58,000			42,816
Favorable leasehold agreements (weighted average 2.7 years):
Gross carrying amount		410			—
Less accumulated amortization		(67)			—
Net favorable leasehold agreements		343			—
Total intangible assets, net	$	151,926		$	189,247

     The Company’s only non-amortizable intangible asset other than goodwill is the FairPoint trade name. Consistent with the valuation methodology used to value the trade name at the Effective Date, the Company assesses the fair value of the trade name based on the relief from royalty method. If the carrying amount of the trade name exceeds its estimated fair value, the asset is considered impaired. The Company performed its annual non-amortizable intangible asset impairment assessment as of October 1, 2010 and concluded that there was no indication of impairment at that time. As of December 31, 2010, as a result of changes to the Company’s financial projections related to the Chapter 11 Cases, the Company determined that a possible impairment of its non-amortizable intangible assets was indicated. The Company performed an interim non-amortizable intangible asset impairment assessment as of December 31, 2010 and determined that the trade name was not impaired.

     Given that the significant decline in the Company’s stock price since the Effective Date has caused its market capitalization to be below its book value, the Company reviewed impairment triggering events specified by the Intangibles — Goodwill and Other Topic of the ASC and concluded that it does not believe a triggering event has occurred. Therefore, an interim non-amortizable intangible asset impairment test on the trade name is not warranted at June 30, 2011. If this condition continues, it could imply that the value of our trade name may not be recoverable, thereby requiring an interim impairment test at September 30, 2011 or future periods that may result in a non-cash write-down of the trade name, which could have a significant adverse impact on our results of operations.

     For its non-amortizable intangible asset impairment assessments, the Company makes certain assumptions including an estimated royalty rate, a long-term growth rate, an effective tax rate and a discount rate, and applies these assumptions to projected future cash flows. Changes in one or more of these assumptions may result in the recognition of an impairment loss.

     The Company’s amortizable intangible assets consist of customer lists and favorable leasehold agreements. Amortizable intangible assets must be reviewed for impairment whenever indicators of impairment exist. See note 3(h) above.

(i) Accounting for Income Taxes

     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     FairPoint files a consolidated income tax return with its subsidiaries. FairPoint has a tax-sharing agreement in which all subsidiaries are participants. All intercompany tax transactions and accounts have been eliminated in consolidation.

     In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. During non-bankruptcy periods, the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management determines its estimates of future taxable income based upon the scheduled reversal of deferred tax liabilities, projected future taxable income exclusive of reversing temporary differences, and tax planning strategies. The Company establishes valuation allowances for deferred tax assets when it is estimated to be more likely than not that the tax assets will not be realized.

(j) Stock-based Compensation Plans

     The Company accounts for its stock-based compensation plans in accordance with the Compensation-Stock Compensation Topic of the ASC, which establishes accounting for stock-based awards granted in exchange for employee services. Accordingly, for employee awards which are expected to vest, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period, which generally begins on the date the award is granted through the date the award vests.

     On the Effective Date, the Company issued options to purchase shares of New Common Stock to certain employees, a consultant and members of the New Board, pursuant to the terms of the Long Term Incentive Plan. The grant date fair value of the options was determined using the Black-Scholes model. Key assumptions used for determining the fair value of the options were as follows: risk-free rate—2.7%; expected term—7 years; expected volatility—45.0%.

(k) Employee Benefit Plans

     The Company accounts for pensions and other post-retirement benefit plans in accordance with the Compensation — Retirement Benefits Topic of the ASC. This Topic requires the recognition of a defined benefit post-retirement plan’s funded status as either an asset or liability on the balance sheet. This Topic also requires the immediate recognition of the unrecognized actuarial gains and losses and prior service costs and credits that arise during the period as a component of other accumulated comprehensive income, net of applicable income taxes. Amounts recognized through accumulated comprehensive income are amortized into current income in accordance with the Compensation — Retirement Benefits Topic of the ASC. Additionally, a company must determine the fair value of plan assets as of the company’s year end.

(l) Business Segments

     Management views its business of providing video, data and voice communication services to residential, wholesale and business customers as one business segment as defined in the Segment Reporting Topic of the ASC. The Company’s services consist of retail and wholesale telecommunications services, including voice, high speed Internet and other services in 18 states. The Company’s chief operating decision maker assesses operating performance and allocates resources based on the consolidated results.

(m) Other Long-Term Liabilities

     As a result of fresh-start reporting, the Company recorded $13.0 million in unfavorable union contracts and $0.7 million in unfavorable leasehold agreements, each of which resulted from agreements with contract rates in excess of market value rates as of the Effective Date. Amortization is recognized on a straight-line basis over the remaining term of the agreements, ranging from 1 to 7 years, as a reduction of employee expense and rent expense within operating expenses.

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Commitments and Contingencies

5 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(13) Commitments and Contingencies

(a) Leases

     The Company does not have any leases with contingent rental payments or any leases with contingency renewal, purchase options, or escalation clauses.

(b) Legal Proceedings

     From time to time, the Company is involved in litigation and regulatory proceedings arising out of its operations. With the exception of the Chapter 11 Cases, 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.

     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. 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 fiscal 2008 and 2009 SQI penalties, as applicable, until December 31, 2010 and included a clause whereby such penalties would be forgiven in part or in whole if the Company met certain metrics for the twelve-month period ending December 31, 2010. As a result of improvements on certain SQI metrics, the Company expects to receive waivers of 60% in New Hampshire and 80% in Vermont under this clause, and, accordingly, reduced its accrual by $12.7 million in the three months ended December 31, 2010. However, the Company’s SQI metrics in the state of New Hampshire are currently subject to an audit ordered by the NHPUC. Therefore, the amount of the waiver in New Hampshire is subject to change depending on the results of the audit. In addition, the Regulatory Settlement for Maine deferred the Company’s fiscal 2008 and 2009 SQI penalties until March 2010.

     As of June 30, 2011 and December 31, 2010, the Company has recognized an estimated liability for service quality penalties based on metrics defined by the state regulatory authorities in Maine, New Hampshire and Vermont. Based on the Company’s current estimate of its service quality penalties in these states, a decrease of $2.5 million in the estimated liability was recorded as an increase to revenue for the three months ended June 30, 2011 and the 157 days ended June 30, 2011 due to an improvement in the Company’s service performance, revisions to accruals and recent changes in Maine regulation which eliminated the multiplier rebate penalties beginning in fiscal 2011. An increase of $0.4 million, $2.0 million and $6.3 million in the estimated liability was recorded as a reduction to revenue for the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, respectively. Beginning in March 2010, the Company began to issue SQI rebates related to the Maine 2008 and 2009 SQI penalties to customers over a twelve month period. During the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, the Company paid out $2.4 million, $4.2 million, $0.6 million, $1.7 million and $2.1 million, respectively, of SQI penalties in the form of customer rebates, all of which were related to Maine fiscal 2008 and 2009 penalties. The Company has recorded a total liability of $13.8 million and $20.8 million on the consolidated balance sheets at June 30, 2011 and December 31, 2010, respectively, of which $9.1 million and $12.5 million, respectively, are included in other accrued liabilities. The remainder of the June 30, 2011 and December 31, 2010 liability is included in claims payable and estimated claims accrual and liabilities subject to compromise, respectively.

(d) Performance Assurance Plan Credits

     As part of the Merger Orders, the Company adopted a PAP for certain services provided on a wholesale basis to CLECs in the states of Maine, New Hampshire and Vermont. Failure to meet specified performance standards in any of these states may result in performance credits being assessed in accordance with the provisions of the PAP in each state. As of June 30, 2011 and 2010, the Company has recorded a reserve for the estimated amount of PAP credits based on metrics defined by the PAP. Credits assessed in Maine and New Hampshire are recorded as a reduction to accounts receivable since they are paid by the Company in the form of credits applied to CLEC bills. PAP credits for Vermont are recorded as liabilities since a majority of these credits are paid to the Vermont Universal Service Fund, while the remaining credits assessed in Vermont are paid by the Company in the form of credits applied to CLEC bills. Based on the Company’s current estimate of its PAP credits in these states, a decrease of $0.9 million, a decrease of $0.1 million, an increase of $0.6 million, an increase of $1.3 million and an increase of $3.9 million in the estimated reserve was recorded as an increase/reduction to revenue for the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, respectively. During the three months ended June 30, 2011, the 157 days ended June 30, 2011, the 24 days ended January 24, 2011 and the three and six months ended June 30, 2010, the Company paid out $0.8 million, $2.9 million, $0.5 million, $2.3 million and $4.1 million, respectively, of PAP credits. The Company has recorded a total reserve of $5.5 million and $8.4 million on the consolidated balance sheets at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011 and December 31, 2010, $4.1 million of the total reserve is recorded to the Claims Reserve and Liabilities Subject to Compromise, respectively.

     The NHPUC has ordered an audit of the Company’s existing PAP in the state of New Hampshire, which has not yet commenced. The existing PAP in Maine and Vermont may also be subject to audit, as determined by the Maine Public Utilities Commission and the Vermont Public Service Board, respectively.

(e) Capital Expenditure Obligations

     Under regulatory settlements in each of Maine, New Hampshire and Vermont, the Company is required to make certain capital expenditures in each of these states. Beginning from the date of the Merger, the Company is required to spend $141.0 million through March 31, 2011 in Maine, $350.4 million through March 31, 2015 in New Hampshire and $120.0 million through March 31, 2011 in Vermont. The Company has exceeded the expenditure requirements with a deadline of March 31, 2011 in Maine and Vermont and expects to meet the expenditure requirements with a deadline of March 31, 2015 in New Hampshire.

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Condensed Consolidated Statement of Stockholders' Equity (Deficit) (Unaudited) (USD $) In Thousands, except Share data	Successor Company Total Stockholders Equity Deficit	Successor Company Total Stockholders Equity Deficit Common Stock	Successor Company Total Stockholders Equity Deficit Additional paid-in capital	Successor Company Total Stockholders Equity Deficit Retained deficit	Successor Company Total Stockholders Equity Deficit Accumulated other comprehensive loss	Predecessor Company Total Stockholders Equity Deficit	Predecessor Company Total Stockholders Equity Deficit Common Stock	Predecessor Company Total Stockholders Equity Deficit Additional paid-in capital	Predecessor Company Total Stockholders Equity Deficit Retained deficit	Predecessor Company Total Stockholders Equity Deficit Accumulated other comprehensive loss
Balance at Dec. 31, 2010						$ (587,418)	$ 894	$ 725,786	$ (1,101,294)	$ (212,804)
Balance, Shares at Dec. 31, 2010						89,440,334	89,440,000
Net income						586,907			586,907
Stock based compensation expense						18		18
Employee benefit adjustment to comprehensive income						493				493
Cancellation of Predecessor Company Common Stock							(894)	(725,804)	726,698
Cancellation of Predecessor Company Common Stock, Shares							(89,440,000)
Elimination of Predecessor Company accumulated other comprehensive loss									(212,311)	212,311
Issuance of Successor Company Common Stock						482,136	257	481,879
Issuance of Successor Company Common Stock, Shares							25,660,000
Issuance of Successor Company warrants						16,350		16,350
Balance at Jan. 24, 2011	498,486	257	498,229	0	0
Balance, Shares at Jan. 24, 2011		25,659,877
Net income	(51,520)			(51,520)
Stock based compensation expense	1,873		1,873
Employee benefit adjustment to comprehensive income	0
Issuance of Successor Company Common Stock		5	(5)
Issuance of Successor Company Common Stock, Shares		539,738
Issuance of restricted stock, Shares		6,800
Forfeiture of restricted stock, Shares		(11,150)
Balance at Jun. 30, 2011	448,839	262	500,097	(51,520)	0
Balance, Shares at Jun. 30, 2011	26,195,265	26,195,000
Balance at Mar. 31, 2011
Net income	(27,097)
Employee benefit adjustment to comprehensive income	0
Balance at Jun. 30, 2011	$ 448,839				$ 0
Balance, Shares at Jun. 30, 2011	26,195,265

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Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) (Parenthetical) (USD $) In Millions	3 Months Ended	5 Months Ended	0 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2011 Successor Company	Jun. 30, 2011 Successor Company	Jan. 24, 2011 Predecessor Company	Jun. 30, 2010 Predecessor Company	Jun. 30, 2010 Predecessor Company
Other comprehensive income, net of taxes:
Tax expenses on defined benefit pension and post retirement plans	$ 0	$ 0	$ 0.5	$ 1.0	$ 2.0

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Long Term Debt

5 Months Ended

Jun. 30, 2011

Long Term Debt [Abstract]

Long Term Debt

(8) Long Term Debt

Long term debt for the Company at June 30, 2011 and December 31, 2010 is shown below (in thousands):

	Successor			Predecessor
	Company			Company
	June 30,			December 31,
	2011			2010
Senior secured credit facility, variable rates ranging from 6.75% to 7.00% (weighted average rate of 6.94%) at December 31, 2010, due 2014 to 2015	$	—		$	1,970,963
Senior secured credit facility, variable rate of 6.50% (weighted average rate of 6.50%) at June 30, 2011, due 2016		1,000,000			—
Senior notes, 13.125%, due 2018		—			549,996
Total outstanding long-term debt		1,000,000			2,520,959
Less amounts subject to compromise		—			(2,520,959	)
Total long-term debt, net of amounts subject to compromise	$	1,000,000		$	—
Less current portion		(5,000	)		—
Total long-term debt, net of current portion	$	995,000		$	—

     The estimated fair value of the Company’s long-term debt at June 30, 2011 and December 31, 2010 was approximately $897.5 million and $1,539.7 million, respectively, based on market prices of the Company’s debt securities at the respective balance sheet dates.

     As of June 30, 2011, the Company had $63.0 million, net of $12.0 million outstanding letters of credit, available for additional borrowing under the Exit Revolving Facility.

     As a result of the filing of the Chapter 11 Cases (see note 1), all pre-petition debts owed by the Company under the Pre-Petition Credit Facility and the Pre-Petition Notes were classified as liabilities subject to compromise in the condensed consolidated balance sheet as of December 31, 2010.

     Pursuant to the Plan, the Company did not make any principal or interest payments on its pre-petition debt during the pendency of the Chapter 11 Cases. In accordance with the Reorganizations Topic of the ASC, as interest on the Pre-Petition Notes subsequent to the Petition Date was not expected to be an allowed claim, the Company did not accrue interest expense on the Pre-Petition Notes during the pendency of the Chapter 11 Cases. Accordingly, $4.8 million and $36.1 million, respectively, of interest on unsecured debts, at the stated contractual rates, was not accrued during the 24 days ended January 24, 2011 and the six months ended June 30, 2010. The Company continued to accrue interest expense on the Pre-Petition Credit Facility, as such interest was considered an allowed claim per the Plan.

     All pre-petition debt was terminated on the Effective Date.

          The approximate aggregate maturities of long-term debt for each of the five years subsequent to June 30, 2011 are as follows (in thousands):

Quarter ending June 30 (Successor
Company),
2012	$	5,000
2013		10,000
2014		17,500
2015		37,500
2016		930,000
	$	1,000,000

     Exit Credit Agreement

     On the Effective Date, the Exit Borrowers entered into the Exit Credit Agreement Loans. On the Effective Date, the Company paid to the lenders providing the Exit Revolving Facility an aggregate fee equal to $1.5 million. Interest on the Exit Credit Agreement Loans accrues at an annual rate equal to either (a) LIBOR plus 4.50%, with a minimum LIBOR floor of 2.00% for the Exit Term Loan, or (b) a base rate plus 3.50% per annum in which base rate is equal to the highest of (x) Bank of America’s prime rate, (y) the federal funds effective rate plus 0.50% and (z) applicable LIBOR (with minimum LIBOR floor of 2.00%) plus 1.00%. In addition, the Company is required to pay a 0.75% per annum commitment fee on the average daily unused portion of the Exit Revolving Facility. The entire outstanding principal amount of the Exit Credit Agreement Loans is due on the Exit Maturity Date; provided that on the third anniversary of the Effective Date, the Company must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a continuation fee of $0.75 million and, on the fourth anniversary of the Effective Date, the Company must elect (subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a second continuation fee of $0.75 million. The Exit Credit Agreement requires quarterly repayments of principal of the Exit Term Loan after the first anniversary of the Effective Date. In the second and third years following the Effective Date, such quarterly payments shall each be in an amount equal to $2.5 million; during the fourth year following the Effective Date, such quarterly payments shall each be in an amount equal to $6.25 million; and for the first three quarters during the fifth year following the Effective Date, such quarterly payments shall each be in an amount equal to $12.5 million, with all remaining outstanding amounts owed in respect of the Exit Term Loan being due and payable on the Exit Maturity Date.

     The Exit Credit Agreement Loans are guaranteed by all of the Exit Financing Loan Parties. The Exit Credit Agreement Loans as a whole are secured by liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties, with first lien and payment waterfall priority for the Exit Revolving Facility and second lien priority for the Exit Term Loan.

     The Exit Credit Agreement contains customary representations, warranties and affirmative covenants. In addition, the Exit Credit Agreement contains restrictive covenants that limit, among other things, the ability of the Company to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock. The Exit Credit Agreement also contains minimum interest coverage and maximum total leverage maintenance covenants, along with a maximum senior leverage covenant measured upon the incurrence of certain types of debt. The Exit Credit Agreement contains certain events of default, including failure to make payments, breaches of covenants and representations, cross defaults to other material indebtedness, unpaid and uninsured judgments, changes of control and bankruptcy events of default. The lenders’ commitments to fund amounts under the Exit Revolving Facility are subject to certain customary conditions. As of June 30, 2011, the Exit Borrowers were in compliance with all covenants under the Exit Credit Agreement.

     Letters of credit outstanding under the DIP Credit Agreement on the Effective Date were rolled into the Exit Revolving Facility.

     Debtor-in-Possession Financing

     In connection with the Chapter 11 Cases, the DIP Borrowers entered into the DIP Credit Agreement with the DIP Lenders and the DIP Administrative Agent. The DIP Credit Agreement provided a revolving facility in an aggregate principal amount of up to $75.0 million, of which up to $30.0 million was also available in the form of one or more letters of credit that could be issued to third parties for the DIP Borrowers’ account ( the “DIP Financing”). Pursuant to the Order of the Bankruptcy Court, dated October 28, 2009 (the “Interim Order”), the DIP Borrowers were authorized to enter into and immediately draw upon the DIP Credit Agreement on an interim basis, pending a final hearing before the Bankruptcy Court, in an aggregate amount of $20.0 million. On March 11, 2010 the Bankruptcy Court issued the Final DIP Order, permitting the DIP Borrowers access to the total $75.0 million of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders of the Bankruptcy Court, of which up to $30.0 million was also available in the form of one or more letters of credit that could be issued to third parties for the DIP Borrowers’ account.

     Other material provisions of the DIP Credit Agreement included the following:

     Interest rates for borrowings under the DIP Credit Agreement were, at the DIP Borrowers’ option, at either (i) the Eurodollar rate plus a margin of 4.5% or (ii) the base rate plus a margin of 3.5%, payable monthly in arrears on the last business day of each month.

     The DIP Credit Agreement provided for the payment to the DIP Administrative Agent, for the pro rata benefit of the DIP Lenders, of an upfront fee in the aggregate principal amount of $1.5 million, which upfront fee was payable in two installments: (1) the first installment of $0.4 million was due and payable on October 28, 2009, the date on which the Interim Order was entered by the Bankruptcy Court, and (2) the remainder of the upfront fee was due and payable on the date the Final DIP Order was entered by the Bankruptcy Court. The DIP Credit Agreement also provided for an unused line fee of 0.50% on the unused revolving commitment, payable monthly in arrears on the last business day of each month (or on the date of maturity, whether by acceleration or otherwise), and a letter of credit facing fee of 0.25% per annum calculated daily on the stated amount of all outstanding letters of credit.

     As of December 31, 2010, the Company had not borrowed any amounts under the DIP Credit Agreement; however, letters of credit had been issued under the DIP Credit Agreement for $18.7 million. Accordingly, as of December 31, 2010, the amount available under the DIP Credit Agreement was $56.3 million.

     The DIP Credit Agreement was terminated on the Effective Date. All letters of credit outstanding under the DIP Credit Agreement were transferred to the Exit Credit Agreement on the Effective Date.

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Fair Value Measurements

5 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

(12) Fair Value Measurements

     The Fair Value Measurements and Disclosures Topic of the ASC (formerly SFAS 157, Fair Value Measurements) defines fair value, establishes a framework for measuring fair value and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. The Fair Value Measurements and Disclosures Topic of the ASC also expands financial statement disclosures about fair value measurements.

     The carrying value of the Swaps at December 31, 2010 represents the termination value of the Swaps as determined by the respective counterparties following the termination event described herein. See note 7 for more information.

     At the Effective Date, all assets and liabilities were remeasured at fair value under fresh start accounting. See note 2.

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Condensed Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011 Successor Company	Dec. 31, 2010 Predecessor Company
Current assets:
Cash	$ 13,058	$ 105,497
Restricted cash	37,498	2,420
Accounts receivable, net	119,857	125,170
Materials and supplies	820	22,193
Prepaid expenses	12,270	18,841
Other current assets	1,841	6,092
Deferred income tax, net	33,972	31,400
Total current assets	219,316	311,613
Property, plant and equipment, net	1,772,565	1,859,700
Goodwill	243,189	595,120
Intangible assets, net	151,926	189,247
Prepaid pension asset	3,927	2,960
Debt issue costs, net	2,109	119
Restricted cash	1,026	1,678
Other assets	9,394	13,357
Total assets	2,403,452	2,973,794
Liabilities not subject to compromise:
Current portion of long-term debt	5,000	0
Current portion of capital lease obligations	1,249	1,321
Accounts payable	73,840	66,557
Claims payable and estimated claims accrual	39,108	0
Accrued interest payable	183	3
Other accrued liabilities	67,033	63,279
Total current liabilities	186,413	131,160
Capital lease obligations	3,308	3,943
Accrued pension obligation	90,971	92,246
Employee benefit obligations	347,018	344,463
Deferred income taxes	314,842	67,381
Unamortized investment tax credits	0	4,310
Other long-term liabilities	17,061	12,398
Long-term debt, net of current portion	995,000	0
Total long-term liabilities	1,768,200	524,741
Total liabilities not subject to compromise	1,954,613	655,901
Liabilities subject to compromise	0	2,905,311
Total liabilities	1,954,613	3,561,212
Stockholders' equity (deficit):
Common stock	262	894
Additional paid-in capital	500,097	725,786
Retained deficit	(51,520)	(1,101,294)
Accumulated other comprehensive loss	0	(212,804)
Total stockholders' equity (deficit)	448,839	(587,418)
Total liabilities and stockholders' equity (deficit)	$ 2,403,452	$ 2,973,794