FairPoint Communications 2011 Annual Report Download - page 52

Table of Contents
 Impairment of long-lived assets and goodwill for 2011 is comprised of an impairment of $243.2 million
to reduce the carrying value of goodwill to zero and an impairment of $18.8 million to reduce the carrying value of a non-amortizable intangible asset related to
our trade name to fair value.
Included in operating expenses are non-cash stock based compensation expenses associated with the award of restricted stock and stock options. Stock
based compensation expenses totaled $9.3 million and $0.5 million for the years ended December 31, 2011 and 2010, respectively.
Other Results
 Interest expense decreased $67.8 million to $73.1 million in 2011 compared to 2010. 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 Pre-Petition Notes and the interest rate swap agreements
under the ISDA Master Agreement with Wachovia Bank, N.A., dated as of December 12, 2000, as amended and restated as of February 1, 2008, and the
ISDA Master Agreement with Morgan Stanley Capital Services Inc., dated as of February 1, 2005 (collectively, the “Swaps”), as it was unlikely that such
interest expense would be paid or would become an allowed priority secured or unsecured claim. We continued to accrue interest expense on the Pre-Petition
Credit Facility, as such interest was considered an allowed claim pursuant to the Plan. Upon the Effective Date, we entered into the Credit Agreement and
began accruing interest on the Revolving Facility and Term Loan (together, the “Credit Agreement Loans”).
 Other income (expense) includes non-operating gains and losses such as those incurred on the sale or disposal of equipment.
Other income was $1.7 million in 2011 compared to other income of $2.7 million in 2010.
 Reorganization items represent expense or income amounts that have been recognized as a direct result of the Chapter 11 Cases,
prior to the Effective Date. For more information, see note 2 to the consolidated financial statements.
 The effective income tax rate is the provision for income taxes stated as a percentage of income before the provision for income taxes. The
effective income tax rate for the years ended December 31, 2011 and 2010 was 56.9% expense and 2.6% benefit, respectively. The effective tax rate for the
year ended December 31, 2011 was primarily impacted by an impairment charge reducing the carrying value of goodwill to zero and from certain non-taxable
cancellation of indebtedness income resulting from our emergence from bankruptcy. The effective tax rate for the year ended December 31, 2010 was impacted
by a one-time, non-cash income tax charge of $6.8 million, as a result of the enactment of the Health Care Act (as hereinafter defined). The effective tax rate
was also impacted by non-deductible restructuring charges and post-petition interest, as well as a significant increase in our valuation allowance for deferred
tax assets due to our inability, by rule, to rely on future earnings to offset our NOLs during the Chapter 11 Cases. Upon the Effective Date, our NOLs were
substantially reduced by the recognition of gains on the discharge of certain debt pursuant to the Plan.
 Net income for the year ended December 31, 2011 was $172.0 million compared to a net loss of $(281.6) million for the year ended
December 31, 2010. The difference in net income (loss) between 2011 and 2010 is a result of the factors discussed above.

The following table sets forth the percentages of revenues represented by selected items reflected in our consolidated statements of operations. The year-to-
year comparisons of financial results are not necessarily indicative of future results (in thousands, except percentage of revenues data):

 
   
Revenues $1,070,986 100% $1,119,090 100%
Operating expenses:
Cost of services and sales 525,728 49 515,394 46
Selling, general and administrative 365,373 34 417,512 37
Depreciation and amortization 289,824 27 275,334 25
Total operating expenses 1,180,925 110 1,208,240 108
Loss from operations (109,939) (10) (89,150) (8)
Interest expense (140,896) (13) (204,919) (18)
Gain on derivative instruments — — 12,320 1
Gain on early retirement of debt — — 12,357 1
Other income (expense) 2,715 — 2,000 —
Loss before reorganization items and income taxes (248,120) (23) (267,392) (24)
Reorganization items (41,120) (4) (53,018) (5)
Loss before income taxes (289,240) (27) (320,410) (29)
Income tax benefit 7,661 1 79,014 7
Net loss $(281,579) (26)% $ (241,396) (22)%
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