FairPoint Communications 2003 Annual Report Download - page 46

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The Series A Preferred Stock was issued to the lenders in connection with the Carrier Services debt restructuring. The Series A
Preferred Stock is nonvoting and is not convertible into common stock of the Company. The Series A Preferred Stock provides for the
payment of dividends at a rate equal to 17.428% per annum. Dividends on the Series A Preferred Stock are payable, at the option of the
Company, either in cash or in additional shares of Series A Preferred Stock. The Company has the option to redeem any outstanding
Series A Preferred Stock at any time. The redemption price for such shares is payable in cash in an amount equal to $1,000 per share plus
any accrued but unpaid dividends thereon (the Preference Amount). Under certain circumstances, the Company would be required to pay a
premium of up to 6% of the Preference Amount in connection with the redemption of the Series A Preferred Stock. In addition, upon the
occurrence of certain events, such as (i) a merger, consolidation, sale, transfer or disposition of at least 50% of the assets or business of the
Company and its subsidiaries, (ii) a public offering of the Company's common stock which yields in the aggregate at least $175.0 million, or
(iii) the first anniversary of the maturity of the Company's senior subordinated notes (which first anniversary will occur in May 2011), the
Company would be required to redeem all outstanding shares of the Series A Preferred Stock at a price per share equal to the Preference
Amount, unless prohibited by the Company's credit facility or by the indentures governing its senior subordinated notes. In connection with
the March refinancing, certain holders of the Series A Preferred Stock agreed to reduce the dividend rate payable on the shares they hold from
17.428% to 15% for the period from March 6, 2003 to March 6, 2005.
In May 2003, the FASB issued SFAS No. 150, 
 SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 applies specifically to financial instruments that companies have historically presented within their
financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS No. 150 is
effective for financial instruments entered into or modified
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after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of a nonpublic entity, in which this statement shall be effective for fiscal periods beginning
after December 15, 2003. For purposes of SFAS No. 150, the Company meets the definition of a nonpublic entity. The Company
prospectively adopted SFAS No. 150, effective July 1, 2003. The SFAS No. 150 adoption had no impact on net income (loss) attributed to
common shareholders for any of the periods presented.
SFAS No. 150 requires the Company to classify as a long-term liability its Series A Preferred Stock and to classify dividends and
accretion from the Series A Preferred Stock as interest expense. Such stock is now described as "Preferred Shares Subject to Mandatory
Redemption" in the Balance Sheets as of December 31, 2003 and dividends and accretion on these shares are now included in pre-tax
income whereas previously they were presented as a reduction to equity (a dividend) and, therefore, a reduction of net income available to
common shareholders.
The initial carrying amount of the Series A Preferred Stock has been recorded at its fair value at the date of issuance ($78.4 million). The
carrying amount is being increased by periodic accretions, using the interest method, so that the carrying amount will equal the mandatory
redemption amount ($82.3 million) at the mandatory redemption date (May 2011). On March 6, 2003, in connection with the Company's
issuance of the 2003 Notes, the Company used a portion of these proceeds to repurchase $13.3 million aggregate liquidation preference of its
Series A Preferred Stock at a 35% discount (together with accrued and unpaid dividends thereon). For the years ended December 31, 2002
and 2003, the Series A Preferred Stock has been increased by $1.0 million and $1.4 million, respectively, to reflect the periodic accretions.
The carrying amount of the Series A Preferred Stock has been further increased by $10.9 million and $16.5 million in connection with
dividends paid in-kind on the outstanding shares of the Series A Preferred Stock for the years ended December 31, 2002 and 2003,
respectively. Prior to the adoption of SFAS No. 150, additional paid-in capital has been decreased $11.9 million and $8.9 million for the
increases in the carrying balance of the Series A Preferred Stock for the year ended December 31, 2002 and the period ended June 30, 2003,
respectively. Upon the adoption of SFAS No. 150, pre-tax income has been decreased $9.0 million for the increases in the carrying balance of
the Series A Preferred Stock for the period July 1, 2003 through December 31, 2003.
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The Company sponsors a voluntary 401(k) savings plan (the 401(k) Plan) that covers substantially all eligible employees. Each 401(k)
Plan year, the Company contributes to the 401(k) Plan an amount of matching contributions determined by the Company at its discretion.
For the 401(k) Plan years ended December 31, 2001, 2002, and 2003, the Company matched 100% of each employee's contribution up to
3% of compensation and 50% of additional contributions up to 6%. The 401(k) Plan also allows for a profit sharing contribution that is made
based upon management discretion. Total Company contributions to the 401(k) Plan were $1.8 million, $1.4 million, and $2.7 million for
the years ended December 31, 2001, 2002, and 2003, respectively.
In 1999, the Company began a Non-Qualified Deferred Compensation Plan (the NQDC Plan) that covers certain employees. The
NQDC Plan allows highly compensated individuals to defer additional compensation beyond the limitations of the 401(k) Plan. Company
matching contributions are subject to the same percentage as the 401(k) Plan. Total Company contributions to the NQDC Plan were
approximately $16,000, $1,000, and $7,000 for the years ended December 31, 2001, 2002, and 2003,
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