FairPoint Communications 2003 Annual Report Download - page 18

2003 from $22.4 million in 2002. Our existing operations accounted for all of this decrease. The support from the high cost loop fund is
associated with historical expense levels of our companies that exceed the national average cost per loop. The historical expenses occur two
years prior to the receipt of the USF revenues. Historical expenses related to a performance share plan paid in 2000 by an acquired company
resulted in USF receipts in 2002 which did not recur in 2003. In addition to this decrease, the USF receipts declined due to increases in the
national average cost per loop.
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 Interstate access revenues increased $0.8 million from $65.8 million in 2002 to $66.6 million in 2003.
Our existing operations accounted for $0.5 million of this increase due to operating expense increases that resulted in higher interstate
revenue requirements and $0.3 million was attributable to the Maine acquisition.
 Intrastate access revenues increased slightly from $43.8 million in 2002 to $44.0 million in 2003. This
slight increase was attributable to the Maine acquisition. While consolidated access revenues were relatively flat, lower access rates in a few
of the states in which we operate were generally offset by higher minutes of use in other states in which we operate.
 Long distance services revenues decreased $1.4 million from $16.8 million in 2002 to $15.4 million in
2003. An approximately $0.2 million increase was attributable to our existing RLEC operations. Carrier Services revenues decreased by
$1.6 million as a result of rate increases from its underlying toll carriers, which resulted in the loss of wholesale customers by Carrier
Services.
 Data and Internet services revenues increased $3.1 million from $10.3 million in 2002 to $13.4 million
in 2003. This increase is primarily from an increase of DSL customers from 6,659 to 17,937, an increase of 169%.
 Other revenues decreased by $0.8 million from $17.8 million in 2002 to $17.0 million in 2003 at our existing
operations. This decrease is mainly associated with reductions in billing and collections revenues, as interexchange carriers, or IXCs,
continue to take back the billing function for their more significant long distance customers. We expect this trend to continue.
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 Operating expenses increased $0.9 million to $111.2 million in 2003 from $110.3 million in 2002. Expenses of
our wholesale long distance company decreased $0.7 million as a result of lower minutes of use from our wholesale customers. This
decrease was offset by an increase of $1.3 million related to our existing operations and $0.3 million related to expenses of the companies we
acquired in 2003 in the Maine acquisition. Several items contributed to the expense increase, including network operations expense,
transport and network costs associated with our broadband initiatives. Expenses also increased because of an increase in the USF life line
fund contribution expense which is directly assigned to the interstate revenue requirement and is fully recovered via our interstate revenues.
Marketing and promotion expenses increased due to higher levels of activity related to the promotion of custom calling features, data services
and other performance products. The increased expenses in 2003 would have been larger except for lower compensation costs in 2003 as a
result of employee termination costs incurred in 2002, as well as a $1.9 million bad debt expense incurred in 2002 when a carrier declared
bankruptcy and a $0.6 million recovery of this write-off received in 2003 resulting in a year over year decrease in bad debt expense of
$2.5 million.
 Depreciation and amortization from continuing operations increased $1.8 million to $48.1 million in
2003 from $46.3 million in 2002. An increase of $1.7 million was attributable to the increased investment in our communications network
by existing operations we acquired prior to 2003 and $0.1 million was attributable to the Maine acquisition.
 For the year ended December 31, 2002, stock based compensation of $0.9 million was incurred,
including $1.2 million resulting from a modification of an employee stock option agreement with an executive officer, offset by the decrease in
the estimated value of fully vested stockholder appreciation rights agreements of $0.3 million. Stock based compensation for the year ended
December 31, 2003 was not material.
 Income from continuing operations decreased $1.1 million to $72.2 million in 2003 from $73.3 million in
2002. A $0.5 million decrease attributable to our existing
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operations and a decrease of $0.9 million from our wholesale long distance company was offset by a $0.3 million increase attributable to the
Maine acquisition.
 Total other expense from continuing operations decreased $0.9 million to $80.6 million in 2003 from
$81.5 million in 2002. The expense consisted primarily of interest expense on long-term debt. Interest expense increased $20.7 million to
$90.2 million in 2003 from $69.5 million in 2002, mainly attributable to our March 2003 debt refinancing and our early adoption of
SFAS 150, as of July 1, 2003, the latter of which resulted in our recording $9.0 million in interest expense related to dividends and accretion
on preferred shares subject to mandatory redemption. During 2002, we recorded non-cash impairment of investments of $12.6 million
which is associated with other than temporary declines in fair value of approximately $8.2 million of Choice One stock and a write-down of