FairPoint Communications 2006 Annual Report Download - page 46

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 Depreciation and amortization from continuing operations increased $0.8 million to $53.2 million in 2006 compared
to 2005. Acquired operations added $2.0 million to depreciation expense. Depreciation expense from our existing operations decreased $1.2 million.
 Income from operations decreased $5.7 million to $61.4 million in 2006 compared to 2005. This decrease is principally due
to the increase in expenses discussed above.
 Total other expense decreased $110.6 million to $11.0 million in 2006 compared to 2005. Interest expense decreased $6.8
million to $39.7 million in 2006 mainly due to lower debt balances throughout the year. Earnings from equity investments decreased $0.7 million to $10.6
million in 2006. Gain (loss) on sale of investments increased $14.7 million compared to 2005, principally due to the sale of two non-core equity investments.
In 2005, in connection with our initial public offering, we refinanced our old credit facility and repurchased and/or redeemed the 9 ½% senior subordinated
notes due 2008, or the 9 ½% notes, the floating rate callable securities due 2008, or the floating rate notes, the 12 ½% senior subordinated notes due 2010, or
the 12 ½% notes, and the 11 /% senior notes due 2010, or the 11 7/8% notes, which resulted in significant charges of $87.7 million due to fees and
penalties paid on the repurchase/redemption and for the write-off of unamortized debt issuance costs.
 Income tax expense of $19.9 million was recorded for the year ended December 31, 2006, resulting in an effective rate of 39.4%.
At the time of our initial public offering in February 2005, we had net operating loss, or NOL, carryforwards of $265.3 million. Prior to February 2005,
we did not expect to generate sufficient taxable income in future years to fully utilize these NOL carryforwards and, as a result, reduced the expected benefit of
these NOL carryforwards by $66.0 million. Subsequent to our initial public offering and related transactions, we re-evaluated our expectation of future taxable
income and concluded that our future taxable income would be sufficient to fully utilize the benefits of the NOL carryforwards. As a result of this re-
evaluation, we recognized an income tax benefit of $66.0 million for the year ended December 31, 2005. Additional income tax benefits of $21.9 million were
recognized in 2005 due to the taxable loss which resulted mainly from additional costs associated with the extinguishment of debt. These two items contributed
to the net income tax benefit of $83.1 million for the year ended December 31, 2005.
As of December 31, 2006, we had $235.1 million of federal and state NOL carryforwards. As a result, the income tax expense we record is generally
greater than the income taxes actually paid by us.
 During the twelve months ended December 31, 2006 and 2005, we recorded a reduction to our liability associated with the
discontinuation of our competitive local exchange carrier operations, which, net of tax, resulted in a $0.6 million and $0.4 million adjustment to income from
discontinued operations, respectively. The adjustments in 2006 and 2005 related to the settlement of certain lease obligations which reduced our future
obligation under these leases and the expiration of certain statutes of limitations as they relate to certain contingency reserves.
 Net income for the year ended December 31, 2006 was $31.1 million compared to $28.9 million for the year ended December 31,
2005. The difference between 2006 and 2005 is a result of the factors discussed above.
Year Ended December 31, 2005 Compared with Year Ended December 31, 2004
Revenues
Revenues increased $10.2 million to $262.8 million in 2005 compared to $252.6 million in 2004. Of this increase, $5.7 million was attributable to the
Berkshire and Bentleyville acquisitions in 2005 and $4.5 million was attributable to our existing operations. We derived our revenues from the following
sources:
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