FairPoint Communications 2003 Annual Report Download - page 52

Download and view the complete annual report

Please find page 52 of the 2003 FairPoint Communications annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 135

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135

The per share weighted average fair value of stock options granted under the 2000 Plan during 2000, 2002, and 2003 were $1.85,
$2.84, and $1.59, respectively, on the date of grant using the Black Scholes option-pricing model. Input variables used in the model included
no expected dividend yields, a weighted average risk free interest rate of 6.49%, 5.28%, and 4.26% in 2000, 2002, and 2003 respectively,
and an estimated option life of 10 years. Because the Company was nonpublic on the date of grant, no assumption as to the volatility of the
stock price was made.

 In October and November of 2001, Carrier Services sold certain assets of its
competitive communications operations to Advanced TelCom, Inc., a wholly owned subsidiary of Advance Telcom Group, Inc. and Choice
One. Total proceeds from these sales of assets were $9.0 million in cash and 2,500,000 restricted shares of Choice One common stock
(valued at $7.9 million). The Company recorded a net loss of $31.1 million from the sale of these assets. In April 2002, Carrier Services
earned an additional 1,000,000 restricted shares of Choice One Common Stock based on the number of access lines converted to the Choice
One operating platform within 120 days after closing. The value of these additional shares, $0.8 million, was recognized as a gain within
discontinued operations in 2002.
In November 2001, in connection with the sale of certain of its assets as previously discussed, the Company announced its plan to
discontinue the competitive communications business operations of its wholly owned subsidiary, Carrier Services. As a result of the adoption
of the plan to discontinue the competitive communications operations, these results are presented as discontinued operations. The Company
recognized a total charge of $95.3 million on the disposal of its competitive communications operations, including the $31.1 million loss on
the sale of assets, $36.1 million for the write-off of the remaining operating assets, including property, plant and equipment, and
$28.1 million for expenses the Company estimated it would incur during the phase-out period, net of estimated revenue to be received from
customers until they were transitioned to other carriers. Estimated expense for the phase-out period included interest expense. Interest
expense was allocated to discontinued operations based on the interest incurred by the Company under Carrier Services' Credit Facility and
the two interest rate swaps related to this facility.
In May 2002, Carrier Services entered into an amended and restated credit facility with its lenders to restructure its obligations under its
credit facility. In the restructuring, (i) Carrier Services paid certain of its lenders $5.0 million to satisfy $7.0 million of obligations under the
credit facility, (ii) the lenders converted approximately $93.9 million of the loans under the credit facility into shares of FairPoint's Series A
Preferred Stock having a liquidation preference equal to the amount of such loans and (iii) the remaining loans under the credit facility and
certain swap obligations were converted into $27.9 million of new term loans.
As a result of this restructuring, in 2002, the Company recorded a gain in discontinued operations of $17.5 million for the
extinguishment of debt and settlement of its interest rate swap agreements. The gain represents the difference between the May 10, 2002
carrying value of $128.8 million of retired debt ($125.8 million) and related swap obligations ($3.0 million) and the sum of the aggregate
value of the cash paid ($5.0 million) plus principal amount of new term loans ($27.9 million) plus the estimated fair value of the Company's
Series A Preferred Stock issued ($78.4 million).
76
Selected information from discontinued operations of Carrier Services for the year ended December 31, 2001 (dollars in thousands):
Revenue $57,080
Operating loss 44,943
Loss before income taxes 93,952
Income tax benefit 985
Loss from discontinued operations $92,967
Capital expenditures $37,426
Assets and liabilities of discontinued operations of Carrier Services as of December 31, 2002 and 2003 follows:


 

Cash $25 —
Accounts receivable 781 105
Current assets of discontinued operations $806 105