FairPoint Communications 2006 Annual Report Download - page 48

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 $2.4 million and $49,000 for the twelve months ended December 31, 2005 and 2004, respectively. The increase is due
primarily to the issuance of restricted stock and restricted units to certain key employees and directors under the 2005 Stock Incentive Plan.
 Depreciation and amortization from continuing operations increased $2.1 million to $52.4 million in 2005 from
$50.3 million in 2004. The Berkshire and Bentleyville acquisitions accounted for $1.0 million of the increase and the remaining increase was attributable to
the increased investment in our communications network for existing operations.
 Income from operations decreased $6.5 million to $67.0 million in 2005 compared to 2004. This decrease is principally due
to the increase in expenses discussed above.
 Total other expense increased $24.2 million to $121.6 million in 2005 from $97.4 million in 2004. Interest expense decreased
$57.9 million to $46.4 million in 2005 mainly due to the transactions associated with the offering which substantially de-leveraged us and provided a
decrease in interest expense. In addition, in connection with the offering we repurchased our series A preferred stock (together with accrued and unpaid
dividends thereon) which eliminated dividends and accretion on our series A preferred stock for the twelve months ended December 31, 2005. The dividends
and accretion on our series A preferred stock were being reported as interest expense under SFAS No. 150. In connection with our initial public offering, we
also refinanced our old credit facility and repurchased and/or redeemed the 9 ½% notes, the floating rate notes, the 12 ½% notes and the 11 7/8% notes,
which resulted in significant charges of $87.7 million due to fees and penalties paid on the repurchase/redemption and for the write-off of unamortized debt
issuance costs. Earnings from equity investments increased $0.4 million to $11.3 million in 2005. 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.
 In 2005, income tax benefits of $83.1 million are primarily the result of the recognition of deferred tax benefits of $66.0 million
from the reversal of the deferred tax valuation allowance that resulted from our expectation of generating future taxable income following the recapitalization.
The income tax benefit for 2005 also includes deferred tax benefits of $29.3 million related to the extinguishment of debt and $1.6 million for an adjustment of
our net deferred tax assets to an expected federal income tax rate of 35% from 34%, in anticipation of higher levels of taxable income in subsequent periods.
These benefits were partially offset by income tax expense associated with taxable income generated following the recapitalization. During the twelve months
ended December 31, 2004, the income tax expense related primarily to income taxes owed in certain states.
 During the twelve months ended December 31, 2005 and 2004, 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 $0.4 million and $0.7 million adjustment to income from
discontinued operations, respectively. The adjustment in 2005 related to the settlement of a lease obligation which reduced our future obligation under this
lease. In 2004, the adjustment was mainly attributable to excise tax refunds received from the Internal Revenue Service as well as a reduction in liabilities
associated with potential property tax payments.
 Net income for the year ended December 31, 2005 was $28.9 million. Our 2004 net loss was $23.7 million. The difference between
2005 and 2004 is a result of the factors discussed above.

Our short-term and long-term liquidity needs arise primarily from: (i) interest payments primarily related to our credit facility; (ii) capital expenditures;
(iii) working capital requirements as may be needed
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