FairPoint Communications 2009 Annual Report Download - page 72

Table of Contents
Transition Services Agreement, and $28.0 million and $52.2 million, respectively of non-recurring Cutover related costs. Excluding the impact of the
Merger and the Transition Services Agreement, selling, general and administrative expenses would have increased $106.4 million. The increase is
primarily due to a $30.8 million increase in bad debt expense, increases in other operating expenses, some of which is attributable to the methodology
utilized by Verizon to allocate certain expenses to selling, general and administrative expenses prior to the Cutover to our own operating systems, as
well as $11.1 million in costs incurred to effect a restructuring of our capital structure prior to filing bankruptcy.
 Depreciation and amortization increased $20.3 million to $275.3 million in 2009 compared to 2008. Legacy
FairPoint contributed $36.7 million and $27.8 million to depreciation and amortization expense in the years ended December 31, 2009 and 2008,
respectively. Excluding the impact of the Merger, depreciation and amortization expense would have increased $11.4 million, due primarily to increased
gross plant asset balances, including capitalized software placed into service upon termination of the Transition Services Agreement. Also contributing
to the increase in depreciation and amortization expense is an increase of $5.6 million in amortization expense on intangible assets acquired in the
Merger, as no such amortization was recognized during the first quarter of 2008, prior to the Merger.
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 $2.1 million and $4.4 million for the years ended December 31, 2009 and 2008, respectively.
Other Results
 Interest expense increased $42.9 million to $204.9 million in 2009 compared to 2008. This increase is due to the debt that we
incurred upon and subsequent to the closing of the Merger. Accrued and unpaid interest on the Old Notes exchanged in the Exchange Offer through
July 28, 2009 was paid on July 29, 2009 in the form of additional New Notes totaling $18.9 million. Accrued and unpaid interest on the New Notes
from July 29, 2009 through September 30, 2009 is payable in the form of additional New Notes totaling $12.2 million. This $31.1 million interest
expense paid or payable in the form of New Notes has been treated as non-cash for purposes of our financial debt covenants under the Pre-petition
Credit Facility. Additionally, upon the filing of the Chapter 11 Cases, in accordance with the Reorganizations Topic of the ASC, we ceased the accrual
of interest expense on the Notes and the Swaps in accordance with the Reorganizations Topic of the ASC as it is unlikely that such interest expense will
be paid or will become an allowed priority, secured or unsecured claim. We have continued to accrue interest expense on the Pre-petition Credit Facility,
as such interest is considered an allowed claim pursuant to the Plan.
 Gain (loss) on derivative instruments represents net gains and losses recognized on the change in fair
market value of interest rate swap derivatives. During the years ended December 31, 2009 and 2008, respectively, we recognized a net non-cash gain of
$12.3 million and a net non-cash loss of $11.8 million related to our derivative financial instruments. In connection with the filing of the Chapter 11
Cases, the Swaps were terminated by the counterparties and have been recorded on the consolidated balance sheet at the termination values provided by
the counterparties.
 Gain on early retirement of debt represents $13.2 million net gains recognized on the repurchase of
$19.9 million aggregate principal amount of the Old Notes during the year ended December 31, 2009, partially offset by a loss of $0.8 million
attributable to writing off a portion of the unamortized debt issue costs associated with the Pre-petition Credit Facility.
66