FairPoint Communications 2005 Annual Report Download - page 98

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In connection with the Company’s initial public offering in February 2005, the Company recognized, in the first quarter of 2005, non-operating losses of
$86.2 million related to fees and penalties paid on the redemption of its Series A preferred stock and the write-off of unamortized debt issuance costs. Also in
connection with the offering, the Company repaid portions of its previously outstanding debt and therefore, interest expense was significantly reduced in the
first quarter of 2005. In addition, the Company recorded an income tax benefit of $66.0 million in the first quarter of 2005 due to the reversal of its valuation
allowance.
In the fourth quarter of 2004, the Company recognized a $6.0 million nonoperating loss related to the write-off of debt issuance and offering costs
associated with an abandoned offering of income deposit securities.
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(a) Cash, Accounts Receivable, Accounts Payable, and Demand Notes Payable
The carrying amount approximates fair value because of the short maturity of these instruments.
(b) Investments
Investments classified as trading securities are carried at their fair value, which was approximately $0.6 million at December 31, 2005 and 2004,
respectively. (see note 6 and note 9)
At December 31, 2005, the Company had cost method investments with a carrying value of $33.1 million. The Company did not estimate the fair value
of these investments as to do so would involve significant judgment and a value could not be determined with any degree of accuracy.
(c) Long-term Debt
The fair value of the Company’s publicly registered long-term debt is stated at quoted market prices. The fair value of the Company’s remaining long-
term debt is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of
comparable maturities. At December 31, 2005 and 2004, the Company had long-term debt with a carrying value of $607.4 million and $810.4 million,
respectively, and estimated fair values of $608.3 million and $865.2 million, respectively.
(d) Redeemable preferred stock
The fair value of the Company’s redeemable preferred stock is estimated utilizing a cash flow analysis at a discount rate equal to rates available for debt
with terms similar to the preferred stock. At December 31, 2004 the Company’s carrying value of its redeemable preferred stock was $116.9 million and
estimated fair value was $126.8 million.
(e) Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
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