FairPoint Communications 2006 Annual Report Download - page 70

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

These interest rate swaps qualify as cash flow hedges for accounting purposes. The effect of hedge ineffectiveness on net earnings was insignificant for
the twelve months ended December 31, 2006 and 2005. At December 31, 2006, the fair market value of these swaps was approximately $8.6 million and has
been recorded, net of tax of $3.2 million, as a increase in accumulated other comprehensive income. Of the $8.6 million, $5.4 million has been included in
other current assets and $3.2 million has been included in other long-term assets.
The Company entered into two additional swap agreements in November 2006 and January 2007. One swap agreement is for a notional amount of $65
million at a rate of 4.91% (or 6.66% including the applicable margin). This agreement is effective as of December 31, 2007 and expires on December 30,
2011. The second swap agreement is for a notional amount of $100.0 million at a rate of 5.02% (or 6.77% including the applicable margin). This agreement is
effective as of December 31, 2008 and expires on December 31, 2010.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, 
. In June 2000, the FASB issued SFAS No. 138, 
. SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. The
Company adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. In accordance with the transition provisions of SFAS No. 133, the Company
recorded a cumulative-effect-type loss adjustment (the transition adjustment) of $(4.7) million in other comprehensive income (loss) to recognize at fair value
all interest rate swap agreements. As of December 31, 2004, the Company has reclassified to nonoperating income (expense) the entire transition adjustment that
was recorded in other comprehensive income (loss). The fair value of the Company’s interest rate swap agreements is determined from valuations received
from financial institutions. The fair value indicates an estimated amount the Company would pay if the contracts were canceled or transferred to other parties.
Amounts receivable or payable under interest rate swap agreements are accrued at each balance sheet date and gains and losses related to effective hedges
are reported, net of tax effect, as a separate component of comprehensive income. Changes associated with swap agreements that did not qualify as accounting
hedges are included as adjustments to realized and unrealized gains (losses) on interest rate swaps.
The following is a summary of amounts included in realized and unrealized gains (losses) on interest rate swaps that did not qualify as accounting
hedges for the twelve months ended December 31, 2004 (in thousands):

Change in fair value of interest rate swaps $ 874
Reclassification of transition adjustment included in other comprehensive income (loss) (103)
Realized losses (883)
Total $(112)
(n) Stock Option Plans
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share-Based Payment” (SFAS No. 123(R)). SFAS
No. 123(R) establishes accounting for stock-based awards granted in
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