FairPoint Communications 2005 Annual Report Download - page 48

was offset by approximately $1.0 million of reductions in billing and collections revenues, as inter-exchange carriers continued to take back the billing
function for their more significant long distance customers.
Operating Expenses
 Operating expenses increased $17.6 million to $128.8
million in 2004 from $111.2 million in 2003. Of the increase, $13.5 million is related to our existing operations and $4.1 million is related to expenses of the
companies we acquired in 2003 in the Maine acquisition. Wages and benefits increased $4.4 million due to merit salary increases, an increase in our bonus
compensation and an increase in the number of our employees compared to a year ago. Network operations expense, wholesale digital subscriber line charges
and transport and network costs associated with our broadband initiatives increased $4.0 million. Cost of goods sold associated with the one-time sale and
installation of E911 system equipment was $1.0 million in 2004. Bad debt expense was $1.6 million higher in 2004 than 2003 due primarily to a recovery
received in 2003. Marketing and promotion expenses increased $0.6 million due to higher levels of activity related to the promotion of custom calling features,
data services and other products. Billing costs have increased $1.0 million as we incurred costs associated with the conversion of our billing systems into an
integrated platform. The balance of the increase is attributable to smaller miscellaneous items.
 Depreciation and amortization from continuing operations increased $2.2 million to $50.3 million in 2004 from $48.1
million in 2003. The Maine acquisition accounted for $1.2 million of the increase and $0.3 million was attributable to the increased investment in our
communications network for existing operations we acquired prior to 2003. The other $0.7 million was related to accelerated depreciation on wireless equipment
due to a decision to exit certain wireless markets.
 For the year ended December 31, 2004, stock based compensation of $49,000 was incurred as a result of 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. The restricted units issued in December of 2003 resulted in a compensation charge of $0.2 million. Stock based compensation for the year ended
December 31, 2003 was $15,000.
 Income from operations increased $1.5 million to $73.6 million in 2004 from $72.1 million in 2003. A $1.5 million decrease
attributable to our existing operations was offset by a $3.0 million increase attributable to the Maine acquisition.
 Total other expense increased $16.8 million to $97.4 million in 2004 from $80.6 million in 2003. The increase consisted
primarily of interest expense on long-term debt, which increased $14.1 million to $104.3 million in 2004 from $90.2 million in 2003, which was mainly
attributable to the extinguishment of debt in connection with our issuance of the 11 8% notes during the first quarter of 2003 and the adoption of Statement of
Financial Accounting Standards 150 as of July 1, 2003, the latter of which resulted in our recording $20.2 million in interest expense related to dividends and
accretion on our series A preferred stock for the year ended December 31, 2004 compared to $9.0 million for the year ended December 31, 2003. Earnings from
equity investments increased $0.8 million to $10.9 million in 2004 from $10.1 million in 2003. For the twelve months ended December 31, 2004, other non-
operating income (expense) includes the write-off of debt issuance and offering costs of $6.0 million associated with an abandoned offering of Income Deposit
Securities. For the year ended December 31, 2003, other non-operating income (expense) of $1.5 million represents the net loss on the extinguishment of debt
and expenses related to the loss on the write-off of loan origination costs. In conjunction with the issuance of $225.0 million of the 11 8% notes during the first
quarter of 2003, we recorded $3.5 million in non-operating gains on the extinguishment of a portion of the 9 2% notes, the 12 2% notes and loans under
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