FairPoint Communications 2011 Annual Report Download - page 51

Table of Contents
Revenues
Revenues decreased $41.5 million to $1,029.5 million in 2011 compared to 2010. We derived our revenues from the following sources:
 Voice services revenues decreased $38.3 million to $493.3 million during 2011 compared to 2010, of which $35.0 million of the decrease
is attributable to local calling services revenues and $3.3 million of the decrease is attributable to long distance service revenues. This decrease in voice services
revenues is primarily due to the impact of an 8.4% decline in total switched access lines in service at December 31, 2011 compared to December 31, 2010,
partially offset by a $2.8 million decline in SQI penalties and a $4.8 million decrease in PAP credits recorded during 2011 as compared to 2010. Due to
various factors, adjustments to SQI and PAP reserves resulted in a net increase in voice services revenue of $2.2 million in 2011. The decrease in the number
of voice access lines is due to an increase in competition and our customers’ use of alternative technologies.
Access revenues decreased $11.8 million to $369.3 million in 2011 compared to 2010. Growth in special access revenue is being offset by
declines in switched access revenues as minutes of use decline. Special access revenue increased primarily due to revenue assurance activities, including back-
billing. Switched access revenues decreased primarily due to an 8.4% decline in total switched access lines in service at December 31, 2011 compared to
December 31, 2010.
 Data and Internet services revenues increased $7.6 million to $117.8 million in 2011 compared to 2010. The increase was
primarily attributable to an 8.4% increase in the number of HSD subscribers from December 31, 2010 to December 31, 2011 resulting from our expanded
HSD footprint, bundling and other marketing efforts.
 Other services revenues increased $1.0 million to $49.1 million in 2011 compared to 2010.
Operating Expenses
. Cost of services and sales decreased $48.3 million to $477.4 million in 2011 compared to 2010. In 2011, we experienced an
$5.2 million decrease in employee expenses, a $7.8 million decrease in deferred charges related to customer activation fees and a $15.1 million reduction in
expense associated with the abandonment of capital projects. These decreases in 2011 were partially offset by severance expenses of $6.6 million associated
with the workforce reduction announced in September 2011. In addition, cost of services and sales in 2010 included certain non-recurring expenses totaling
$13.3 million which contributed to the decrease in 2011.
As a result of fresh start accounting, we wrote off all deferred charges which had been deferred in prior periods and were being amortized into expense
over an average customer life. After fresh start, we began to defer any new expenses incurred associated with customer activation fees. Prior to the Effective
Date, the amortization of expense each year was greater than the deferral (resulting in a net increase in expense), whereas after fresh start the deferral is greater
than the amortization (resulting in a net decrease in expense).
 Selling, general and administrative expenses decreased $6.2 million to $359.2 million in 2011 compared to 2010.
The decrease is primarily attributable to reductions in general and administrative expenses associated with our efforts to streamline expenses. These
improvements were offset by a $1.3 million increase in bad debt expense, increasing from $20.5 million in 2010 to $21.8 million in 2011, a $7.0 million
increase in pension and post-retirement healthcare plan expenses recorded during 2011 and $1.3 million of severance expense related to the workforce reduction
that was announced in September 2011.
 Depreciation and amortization increased $68.6 million to $358.4 million in 2011 compared to 2010. This increase is
comprised of a $79.3 million increase in depreciation expense offset by a $10.7 million decrease in amortization of intangible assets. In conjunction with the
adoption of fresh start accounting, our assets and liabilities were recorded at fair value. On the Effective Date, while the carrying value of property, plant and
equipment was written down to fair value, the remaining useful lives established were, in general, shorter than their original estimated useful lives. This has
resulted in an increase in depreciation expense from the prior year.
 Reorganization related expense represents expense or income amounts that have been recognized as a direct result of the
Chapter 11 Cases, occurring after the Effective Date. During 2011, reorganization related expense is comprised of a $7.3 million reversal of a portion of the
claims reserve established to pay outstanding bankruptcy claims and various other bankruptcy related fees (the “Claims Reserve”) due to several favorable
settlements during the year and an estimation of future favorable settlements, offset by $7.0 million of restructuring professional fees primarily related to fresh
start accounting and continuing work to settle outstanding claims.
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