FairPoint Communications 2004 Annual Report Download - page 72

to predict what effect the legislation will have on us, including our operations and our revenues and expenses, and our competitors. Several
regulatory and judicial proceedings have recently concluded, are underway or may soon be commenced, that address issues affecting our
operations and those of our competitors. We cannot predict the outcome of these developments, nor can we assure that these changes will
not have a material adverse effect on us or our industry.
For a more thorough discussion of the regulatory issues that may affect our business, see "Item 1. Business—Regulatory
Environment."
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Our acquisitions likely will be subject to federal, state and local regulatory approvals. We cannot assure you that we will be able to obtain
any necessary approvals, in which case a potential acquisition could be delayed or not consummated.
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During the third quarter of 2004, we impaired the value of our marketable available-for-sale equity investments due to an other-than-
temporary decline in market value. At December 31, 2004, the carrying value of such investments was zero.
At December 31, 2004, approximately 68% of our debt bore interest at fixed rates or effectively at fixed rates. Our earnings are affected
by changes in interest rates as our long-term debt under our credit facility has variable interest rates based on either the prime rate or LIBOR.
If interest rates on our variable rate debt increased by 10%, our interest expense would have increased, and our loss from continuing
operations before taxes would have increased, by approximately $1.7 million for the year ended December 31, 2004.
From time to time, we have entered into interest rate swaps to manage our exposure to fluctuations in interest rates on our variable rate
debt. In connection with our old credit facility, we used two interest rate swap agreements, with notional amounts of $25.0 million each, to
effectively convert a portion of our variable interest rate exposure to fixed rates ranging from 8.07% to 10.34%. These swap agreements
expired in May 2004.
In connection with the offering, we entered into three interest rate swap agreements which fixed the interest rate on approximately
$130.0 million of the term loans under our credit facility at 6.11% until December 31, 2009, fixed the interest rate on approximately
$130.0 million of the term loans under our credit facility at 5.98% until December 31, 2008 and fixed the interest rate on approximately
$130.0 million of the term loans under our credit facility at 5.76% until December 31, 2007. After these interest rate swap agreements expire,
our annual debt service obligations on such portion of the term loans will vary from year to year unless we enter into a new interest rate swap
or purchase an interest rate cap or other interest rate hedge. An increase of ten percent in the annual interest rate applicable to borrowings
under the term loan facility of our credit facility would result in an increase of approximately $0.9 million in our annual cash interest expense,
and a corresponding decrease in cash available to pay dividends on our common stock. If we choose to enter into a new interest rate swap or
purchase an interest rate cap or other interest rate hedge in the future, the amount of cash available to pay dividends on our common stock
may decrease. However, to the extent interest rates increase in the future, we may not be able to enter into a new interest rate swap or to
purchase an interest rate cap or other interest rate hedge on acceptable terms.
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