FairPoint Communications 2005 Annual Report Download - page 37

the series A preferred stock as interest expense. Such stock is described as “Preferred Shares Subject to Mandatory Redemption” in the balance sheet and dividends and accretion
on these shares are included in pre-tax income prior to repurchase in 2005 whereas previously they were presented as a reduction to equity (a dividend), and, therefore, a
reduction of net income available to common stockholders. For the years ended December 31, 2005, 2004 and 2003, interest expense includes $2,362, $20,181 and $9,049,
respectively, related to dividends and accretion on preferred shares subject to mandatory redemption.
(3) On January 1, 2001, we adopted the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities,” as amended by SFAS No. 138. On
the date of adoption, we recorded a cumulative adjustment of $4,664 in accumulated other comprehensive income for the fair value of interest rate swaps. Because the interest rate
swaps did not qualify as accounting hedges under SFAS No. 133, the change in fair value of the interest rate swaps were recorded as non operating gains or losses, which we
classify in other income (expense). We also recorded other income (expense) in 2003, 2002 and 2001 for the amortization of the transition adjustment of the swaps initially recognized
in accumulated other comprehensive income. In the second quarter of 2002, we adopted SFAS No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13 and Technical Corrections.” This statement eliminates the requirement that gains and losses from the extinguishment of debt be required to be aggregated and, if
material, classified as an extraordinary item, net of related income tax effect. In 2003, other income (expense) includes a $3,465 gain on the extinguishment of debt and a $4,967
loss for the write-off of debt issue costs related to this extinguishment of debt. In 2004, other income (expense) includes a $5,951 loss for the write-off of debt issuance and
offering costs associated with an abandoned offering of Income Deposit Securities. In 2005, other income (expense) includes an $87.7 million loss on early retirement of debt and
loss on repurchase of series A preferred stock.
(4) In 2005, we recorded an income tax benefit of $83.1 million which is primarily the result of the recognition of deferred tax benefits of $66.0 million from the reversal of the deferred
tax valuation allowance that resulted from our expectation of generating future taxable income following the recapitalization that occurred as part of our initial public offering, or the
offering, in February 2005.
(5) In connection with the offering we effected a 5.2773714 for 1 reverse stock split of our common stock. All share and per share amounts related to our common stock have been
restated to reflect the reverse stock split.
(6) Total access line equivalents includes voice access lines and high speed data lines, which include DSL lines, wireless broadband and cable modem.
(7) In connection with the offering, we repurchased all of our series A preferred stock from the holders thereof.
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