FairPoint Communications 2005 Annual Report Download - page 95

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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 the Carrier Services’ credit facility and the two interest rate swaps related to this facility.
On May 2002, Carrier Services entered into an amended and restated credit facility with its lenders to restructure the 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).
During 2004 and 2003, the Company revised its assumptions on certain lease obligations related to the restructuring accrual and as a result, increased the
obligation by $0.1 million in 2004 and reduced the obligation by $0.2 million in 2003. Also during 2004, accrued liabilities associated with the discontinued
operations were re-evaluated, or settled for less than original estimates and as a result, these obligations were adjusted by $0.6 million.
In January 2006, the Company reached a settlement on certain lease obligations which reduced the remaining obligations related to discontinued
operations. As a result, the Company reduced the obligation by $0.6 million to properly reflect the on-going obligations of the Company.
Assets and liabilities of discontinued operations of Carrier Services as of December 31, 2005 and 2004 follows (in thousands):
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Accounts receivable $ 90 $ 102
Current assets of discontinued operations $ 90 $ 102
Accrued liabilities $(1,133) $ (1,141)
Restructuring accrual (1,312)(1,071)
Accrued property taxes (50)(50)
Current liabilities of discontinued operations $(2,495) $ (2,262)
Restructuring accrual $ — $ (1,580)
Long-term liabilities of discontinued operations $ — $ (1,580)
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