FairPoint Communications 2006 Annual Report Download - page 96
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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.
(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 $0.7 million and $0.6 million at December 31, 2006
and 2005, respectively. (see note 7 and note 10)
At December 31, 2006, the Company had cost method investments with a carrying value of $4.1 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 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, 2006 and 2005, the Company had long-term debt with a carrying value of
$608.0 million and $607.4 million, respectively, and estimated fair values of $608.4 million and $608.3 million, respectively.
(d) 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.
Revenues for interstate access services are based on reimbursement of costs and an allowed rate of return. A substantial portion of revenues of this nature
are received from NECA in the form of monthly settlements. Such revenues amounted to 24.5%, 26.7%, and 25.7% of the Company’s total revenues from
continuing operations for the years ended December 31, 2006, 2005, and 2004, respectively.
Certain of the Company’s telephone subsidiaries participate in revenue-sharing arrangements with other telephone companies for interstate revenue-
sharing arrangements and for certain intrastate revenue. Such sharing arrangements are funded by toll revenue and/or access charges within the state
jurisdiction
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