FairPoint Communications 2003 Annual Report Download - page 2

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Index 2
PART I
1. Business 3
2. Properties 17
3. Legal Proceedings 18
4. Submission of Matters to a Vote of Security Holders 18
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 19
6. Selected Financial Data 19
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21
7A. Quantitative and Qualitative Disclosures about Market Risk 39
8. Independent Auditors' Report and Consolidated Financial Statements 41
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 83
9A. Controls and Procedures 83
PART III
10. Directors and Executive Officers of the Registrant 84
11. Executive Compensation 87
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 91
13. Certain Relationships and Related Transactions 93
14. Principal Accounting Fees and Services 94
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 95
Independent Auditors' Report and Schedule
Signatures 97
Exhibit Index 98
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Except as otherwise required by the context, references in this Annual Report on Form 10-K to FairPoint, our company, we, us or our
refer to the combined businesses of FairPoint Communications, Inc. and all of its subsidiaries. All references to the Company refer to
FairPoint Communications, Inc., excluding its subsidiaries.
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We are a leading provider of communications services in rural communities, offering an array of services, including local voice, long
distance, data, Internet and broadband product offerings. We are one of the largest rural telephone companies, and we believe that we are the
16th largest local telephone company, in the United States. We operate in 17 states with approximately 264,300 access line equivalents
(including voice access lines and digital subscriber lines, or DSL) in service as of December 31, 2003.
We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We
have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their
respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 residents. All of our
telephone company subsidiaries qualify as rural local exchange carriers, or RLECs, under the Telecommunications Act of 1996, or the
Telecommunications Act.
RLECs generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory
environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus
a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because
RLECs primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and
capital investment requirements for new entrants is high. As a result, in our markets, we have experienced virtually no wireline competition
and limited competition from cable providers. While most of our markets are served by wireless service providers, their impact on our
business has been limited.
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We believe we are distinguished by the following competitive strengths:
• We have the leading market position in the rural