FairPoint Communications 2011 Annual Report Download - page 54

Table of Contents
 Selling, general and administrative expenses decreased $52.1 million to $365.4 million in 2010 compared to
2009. The decrease is primarily attributable to a $27.9 million reduction in bad debt expense due to improved cash collections during 2010 and settlements
with CLECs related to the Chapter 11 Cases. Additionally, prior to the Petition Date, all expenses related to restructuring activities were classified as selling,
general and administrative expenses. During the Chapter 11 Cases, such expenses have been classified as Reorganization items. Accordingly, the year ended
December 31, 2009 included $11.1 million in restructuring expenses as compared to zero for the year ended December 31, 2010.
 Depreciation and amortization increased $14.5 million to $289.8 million in 2010 compared to 2009, due primarily to
significant capital expenditures in 2010 and the placement of plant assets into service.
Included in operating expenses are non-cash stock based compensation expenses associated with the award of restricted stock and stock units. Stock
based compensation expenses totaled $0.5 million and $2.1 million for the years ended December 31, 2010 and 2009, respectively.
Other Results
 Interest expense decreased $64.0 million to $140.9 million in 2010 compared to 2009. 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 Swaps as it was unlikely
that such interest expense would be paid or would become an allowed priority secured or unsecured claim, resulting in a significant decrease in 2010 interest
expense. We 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 year ended December 31, 2009 we recognized a net non-cash gain of $12.3 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. Accordingly, we recognized no gain or loss on derivative instruments
during the year ended December 31, 2010.
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. We did not retire any debt during the year ended December 31, 2010
and thus did not recognize any gain or loss on early retirement of debt during such period.
 Other income (expense) includes non-operating gains and losses such as those incurred on sale or disposal of equipment.
Other income was $2.7 million in 2010 compared to other income of $2.0 million in 2009. This increase is primarily attributable to a $3.0 million lease
contract settlement with a vendor that occurred during the third quarter of 2010.
 Reorganization items represent expense or income amounts that have been recognized as a direct result of the Chapter 11 Cases.
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, 2010 and 2009 was 2.6% benefit and 24.7% benefit, respectively. 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 Patient Protection and
Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, both of which became law in March 2010 (collectively, the “Health Care
Act”). 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 loss for the year ended December 31, 2010 was $(281.6) million compared to net loss of $(241.4) million for the year ended December 31,
2009. The difference in net loss between 2010 and 2009 is a result of the factors discussed above.
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