FairPoint Communications 2007 Annual Report Download - page 58

Table of Contents
(principally related to HSD and long distance services), an increase in operating taxes of $1.3 million, an increase in bad debt expense of
$0.9 million, and an increase in various network expenses of $1.2 million. These increases were partially offset by decreases in employee
related costs of $0.9 million and billing expenses of $0.8 million.
Included in operating expenses are non-cash stock based compensation expenses associated with the award of restricted stock and
restricted units. Stock based compensation expenses totaled $4.0 million and $2.9 million for the years ended December 31, 2007 and
2006, respectively.
 Depreciation and amortization from continuing operations decreased $2.4 million to $50.8 million
in 2007 compared to 2006. Acquired operations added $2.4 million to depreciation expense. Depreciation expense from our existing
operations decreased $4.8 million primarily due to the maturing nature of our plant assets.
 Income from operations decreased $45.1 million to $16.2 million in 2007 compared to 2006. This
decrease is principally due to the increase in merger related expenses of $52.1 million incurred in 2007.
 Total other expense decreased $9.6 million to $1.4 million in 2007. Net gains on sale of investments and
other assets increased $34.7 million, principally as a result of the sale of our investment in O-P Disposition. Equity in net earnings of
investees decreased $5.6 million in 2007 due to the O-P Disposition in April 2007. In addition, interest and dividend income decreased
$2.4 million in 2007 and we recorded a loss on derivative instruments for the change in fair value of $17.2 million in 2007.
 Income tax expense of $9.1 million was recorded for the year ended December 31, 2007, resulting in an
effective rate of 61.4%. Our effective tax rate for the year ended December 31, 2007 differs from the federal statutory income tax rate
primarily due to nondeductible permanent differences. In 2007, we determined that certain expenses related to the merger were not
deductible for tax purposes.
As of December 31, 2007, we had $183.5 million of federal and state net operating loss, or NOL, carryforwards. As a result, the
income tax expense we record is generally greater than the income taxes we currently pay.
 During the years ended December 31, 2007 and 2006, 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 $0.3 million and
$0.6 million adjustment to income from discontinued operations, respectively. The adjustment in 2007 related to the expiration of the
statute of limitations on certain liabilities. The adjustments in 2006 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, 2007 was $6.0 million compared to $31.1 million for the year ended
December 31, 2006. This decrease is principally due to merger related expenses and losses on contingent interest rate swaps incurred in
2007. The remaining difference between 2007 and 2006 is a result of the other factors discussed above.


Revenues increased $7.2 million to $270.1 million in 2006 compared to 2005. Operations acquired in 2005 and 2006 contributed
$10.6 million to the increased total revenues. Excluding the impact of acquired operations, revenues from our existing operations
decreased $3.4 million. We derived our revenues from the following sources:
 Local calling service revenues increased $1.8 million to $67.7 million in 2006. Acquired operations
increased local calling service revenues by $3.0 million. Revenues from our existing operations decreased $1.2 million compared to 2005.
The decrease in local revenues from existing operations is primarily due to a 3.4% decline in net voice access lines.
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