FairPoint Communications 2006 Annual Report Download - page 49

to support the growth of our business; (iv) dividend payments on our common stock; and (v) potential acquisitions. Our board of directors has adopted a
dividend policy which reflects our judgment that our stockholders would be better served if we distributed a substantial portion of our cash available for
distribution to them instead of retaining it in our business.
We expect to fund our operations, interest expense, capital expenditures not related to the Merger and dividend payments on our common stock for the
next twelve months principally from cash from operations and distributions from investments. To fund future acquisitions, we intend to use cash from
operations and borrowings under our credit facility, or, subject to the restrictions in our credit facility, proceeds from the sale of non-core assets or to arrange
additional funding through the sale of public or private debt and/or equity securities, or obtain additional senior bank debt.
For the years ended December 31, 2006, 2005 and 2004, net cash provided by operating activities of continuing operations was $81.8 million,
$61.7 million and $46.0 million, respectively. The increase in net cash provided by operating activities in 2006 was primarily due to a decrease in accrued
interest resulting from our recapitalization in February 2005.
Our ability to service our indebtedness depends on our ability to generate cash in the future. We are not required to make any scheduled principal
payments under our credit facility’s term loan facility prior to maturity in February 2012. We will need to refinance all or a portion of our indebtedness on or
before maturity. We may not be able to refinance our indebtedness on commercially reasonable terms or at all. If we were unable to renew or refinance our credit
facility, our failure to repay all amounts due on the maturity date would cause a default under our credit facility.
Borrowings under our credit facility bear interest at variable interest rates. We have entered into various interest rate swap agreements which are detailed in
Note 1(m) to our consolidated financial statements included in this Annual Report. As a result of these swap agreements, as of December 31, 2006,
approximately 90% of our indebtedness bore interest at fixed rates rather than variable rates. 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. To the extent interest rates increase in the future, we may not be able to enter into new interest rate swaps or to purchase interest rate
caps or other interest rate hedges on acceptable terms. An increase of 10% in the annual interest rates on our variable rate indebtedness (excluding variable rate
indebtedness which has its interest rate effectively fixed under interest rate swap agreements) would result in an increase of approximately $0.1 million in our
annual cash interest expense.
Based on the dividend policy with respect to our common stock, we may not have any significant cash available to meet any unanticipated liquidity
requirements, other than available borrowings, if any, under the revolving facility of our credit facility. As a result, we may not retain a sufficient amount of
cash to finance growth opportunities, including acquisitions, or unanticipated capital expenditures or to fund our operations. If we do not have sufficient cash
for these purposes, our financial condition and our business will suffer. However, our board of directors may, in its discretion, amend or repeal the dividend
policy to decrease the level of dividends provided for or discontinue entirely the payment of dividends.
On February 8, 2005, we used net proceeds received from our initial public offering, together with approximately $566.0 million of borrowings under
the term loan facility of our credit facility, to, among other things, repay all outstanding loans under our old credit facility, repurchase all of our series A
preferred stock and consummate tender offers and consent solicitations in respect of our outstanding 9 2% notes, floating rate notes, 12 2% notes and 11 8%
notes. On March 10, 2005, we redeemed the remaining outstanding 9 2% notes and floating rate notes. We redeemed the remaining outstanding 12 2% notes on
May 2, 2005 with borrowings of $22.4 million under the delayed draw facility of our credit facility.
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