FairPoint Communications 2004 Annual Report Download - page 30

such distributions, we believe that distributions from such investments and interests for fiscal 2005 will be consistent with
historical recurring levels.
•For fiscal years 2004, 2003 and 2002, we incurred $36.5 million, $33.6 million and $38.8 million, respectively, in capital
expenditures. For fiscal years 2004, 2003 and 2002, we had capital expenditures of $9.0 million, $4.7 million and
$3.0 million, respectively, related to our digital subscriber line initiative. This investment has resulted in approximately 93% of
our exchanges being broadband enabled as of December 31, 2004. We expect that the amount of our capital expenditures
related to digital subscriber line technology in 2005 will significantly decrease. Capital expenditures for fiscal 2004 also includes
the costs of converting our six billing systems into an integrated platform and the centralization of our customer service records.
Capital expenditures for fiscal 2002 also includes the costs associated with switch and plant upgrades for certain of our
exchanges and the purchase of high level digital loop carrier equipment. Such upgrades enable us to provide higher quality
service and enhanced features to our customers. The cost to deploy similar technologies has decreased since the
implementation of such upgrades. For example, equivalent capacity can be provided on soft switch technology which is less
capital intensive than the time division multiplex switches purchased in 2002. We expect capital expenditures in fiscal 2005 to
be approximately $31.0 million.
•Our analysis of the impact of our new capital structure (including the payment of dividends at the level described above) on our
operations and performance in prior years and our determination that our credit facility's revolving facility would have had
sufficient capacity to finance any fluctuations in working capital and other cash needs, including the payment of dividends at the
levels described above. We currently do not intend to borrow under our credit facility's revolving facility to pay dividends.
We have also assumed:
•that our general business climate, including such factors as consumer demand for our services, the level of competition and
our favorable regulatory environment, will remain consistent with previous periods; and
•the absence of extraordinary business events, such as new industry altering technological advances or regulatory
developments, that may adversely affect our business, results of operations or anticipated capital expenditures.
If our Adjusted EBITDA with respect to the four fiscal quarters ending March 31, 2006 were to fall below $120.7 million or our average
Adjusted EBITDA with respect to each such quarter were to fall below $30.2 million (or if our assumptions as to capital expenditures,
principal repayments, interest expense or tax expense were too low), we would need to either reduce or eliminate dividend payments on our
common stock or, to the extent we were permitted to do so under our credit facility, fund a portion of the dividends on our common stock with
borrowings or from other sources. If we were to use working capital or permanent borrowings under our credit facility's revolving facility to
fund dividend payments, we would have less cash available for future dividend payments and other purposes, which could negatively impact
our financial condition, our results of operations and our ability to maintain or expand our business. In addition, to the extent we finance
capital expenditures or acquisitions with indebtedness, we will begin to incur incremental interest and principal obligations.
There can be no assurance that our Adjusted EBITDA will equal or exceed the minimum levels set forth above, and our belief that it will
equal or exceed such levels are subject to all of the risks, considerations and factors identified in other sections of this Annual Report,
including those identified in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk
Factors."
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