Fairpoint Communications (FRP)

Consolidated revenues for the six months ended June 30, 2006 were $129.0 million, an increase of $2.1 million or 1.7% compared to the six months ended June 30, 2005.  Excluding the impact of operations acquired in 2005 and certain non-recurring items, revenues increased $1.2 million or 1.0% compared to the prior year.  Revenues in the first six months of 2006 included negative interstate revenue settlement true-ups of $1.0 million related to prior years.  Revenue in the first six months of 2005 included certain non-recurring items of $1.9 million consisting of positive interstate revenue settlements related to prior years.  The combination of these two revenue settlements resulted in a $2.9 million decrease in interstate revenue in the six month period ended June 30, 2006 compared to 2005.  Excluding these revenue settlements and the two acquisitions made in 2005, this increase of $1.2 million, excluding acquisitions and non-recurring items, is primarily the result of increases in data and internet services revenue of $1.6 million, long distance revenue of $1.3 million, other services revenue of $0.9 million, local service revenue of $0.5 million and a slight increase in USF revenue.  These increases were partially offset by a decrease in intrastate access revenue of $2.5 million and a decrease in interstate access revenue of $0.8 million.

The increase in data and internet services revenue was primarily driven by an increase in the number of HSD subscribers.  Long distance revenue increased primarily as a result of increases in the number of subscribers and minutes of use in addition to improved product and bundles pricing.  Other services revenue increased due to an increase in directory revenue. Local service revenue increased due to an increase in local interconnection revenue and the continued rollout of new bundled packages.  Intrastate access revenue declined primarily due to a decrease in access rates and a decrease in minutes of use compared to the six months ended June 30, 2005.  The rate decrease is primarily due to intrastate rate reductions implemented in Maine in the second quarter of 2005.  Intrastate revenues are expected to continue to decline.

Operating expenses (excluding depreciation and amortization) increased $4.1 million or 6.1% compared to the six months ended June 30, 2005.  Excluding the impact of operations acquired in 2005, operating expenses increased $1.8 million or 2.7%.  The primary drivers of this increase were an increase in network operations expenses of $0.8 million, an increase in billing expenses of $0.8 million, an increase in audit and tax related expenses of $0.6 million, an increase in employee compensation expenses of $0.4 million, an increase in lease expenses of $0.4 million and an increase in expenses related to HSD and long distance services of $0.3 million.  These increases were offset by decreases in consulting expenses of $1.8 million.

Also included in operating expenses are expenses associated with stock based compensation which are non-cash expenses.  Total stock based compensation expenses for the six months ended June 30, 2006 and June 30, 2005 were $1.3 million and $1.1 million, respectively.  Depreciation and amortization expense increased $0.9 million compared to the same period in 2005.

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Income from operations decreased $2.9 million to $30.1 million for the six months ended June 30, 2006 compared to the six months ended June 30, 2005.  This decrease was principally driven by the increases in expenses noted above, net of increases in revenues.

Earnings per share on a fully diluted basis were $0.60 for the six months ended June 30, 2006, compared to earnings per share on a fully diluted basis of $0.57 for the same period in 2005.  This increase is primarily the result of non-recurring gains on the sale of non-core assets in the second quarter of 2006.

Adjusted EBITDA for the six months ended June 30, 2006 was $66.4 million, compared to Adjusted EBITDA of $66.2 million for the same period in the prior year.

The Company finished the six month period ended June 30, 2006 with a Cumulative Cash Available for Dividends balance of $39.3 million, up from $27.6 million at March 31, 2006.

Consolidated revenues for the three months ended March 31, 2006 were $64.8 million, an increase of $3.1 million or 5.1% compared to the three months ended March 31, 2005. Excluding the impact of operations acquired in 2005, revenues increased $0.7 million or 1.1% compared to the first quarter of the prior year. This increase of $0.7 million, excluding acquisitions, is primarily the result of increases in data and internet services revenue of $0.9 million, long distance revenue of $0.6 million, other services revenue of $0.4 million, interstate revenue of $0.2 million, and local service revenue of $0.2 million. These increases were partially offset by a decrease in intrastate access revenue of $1.5 million.

The increase in data and internet services revenue was primarily driven by an increase in the number of HSD subscribers which, excluding acquisitions, increased by 10,698 from March 31, 2005. Long distance revenue increased primarily as a result of increases in the number of subscribers and minutes of use in addition to improved product and bundles pricing. Other services revenue increased due to an increase in directory revenue. Local service revenue increased due to an increase in local interconnection revenue and the continued rollout of new bundled packages. Intrastate access revenue declined primarily due to a decrease in access rates and a decrease in minutes of use compared to the first quarter of 2005. The rate decrease is primarily due to intrastate rate reductions implemented in Maine in the second quarter of 2005. Intrastate revenues are expected to continue to decline.

Operating expenses (excluding depreciation and amortization) increased $3.2 million or 9.7% compared to the first quarter of 2005. Excluding the impact of operations acquired in 2005, operating expenses increased $1.7 million or 5.3%. The primary drivers of this increase were an increase in audit and tax related expenses of $0.5 million, an increase in legal expenses of $0.2 million and an increase in billing expenses of $0.5 million.

Despite the increase in operating expenses compared to the prior year, operating expenses decreased $1.6 million or 4.3% compared to the fourth quarter of 2005. In comparison to the fourth quarter of last year, the $1.6 million decrease was principally driven by a decrease in employee benefits expenses of $1.0 million, a decrease in expenses related to HSD and long distance services of $0.4 million and a decrease in bad debt expenses of $0.2 million. Of the $1.0 million decrease in employee benefits expenses, $0.7 million related to an adjustment to the Company’s estimated health insurance reserves. This $0.7 million was offset by various other unusual expenses during the quarter.

Also included in operating expenses are expenses associated with stock based compensation which are non-cash expenses. Total stock based compensation expenses for the three months ended March 31, 2006 and March 31, 2005 were $0.6 million and $0.4 million, respectively. Depreciation and amortization expense increased $0.6 million compared to the same period in 2005.

Income from operations decreased $0.7 million to $15.6 million for the three months ended March 31, 2006 compared to the three months ended March 31, 2005. This decrease was principally driven by the increases in expenses noted above, net of increases in revenues.

Earnings per share on a fully diluted basis were $0.17 for the three months ended March 31, 2006, compared to earnings per share on a fully diluted basis of $0.46 for the same period in 2005. This decrease primarily results from certain unusual items related to the Company’s initial public offering in February 2005.

Adjusted EBITDA for the three months ended March 31, 2006 was $33.3 million, compared to Adjusted EBITDA of $32.4 million for the same period in the prior year.

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Cash Available for Dividends of $18.4 million was generated during the three months ended March 31, 2006, down slightly from the $18.9 million generated in the three months ended December 31, 2005.