FairPoint Communications 2007 Annual Report Download - page 64

Table of Contents
our invested capital in regulated telephone assets, capital expenditures have historically constituted an attractive use of our cash flow.
Capital expenditures, excluding merger related capital expenditures, were approximately $29.2 million, $32.3 million and $28.1 million
for the years ended December 31, 2007, 2006 and 2005, respectively.
Our cash capital expenditures related to the merger were approximately $30.0 million in 2007. In addition, in 2007, we incurred other
merger related expenses of $52.1 million. A portion of these expenditures and expenses was paid for with proceeds from the O-P
Disposition which was completed in April 2008. The remaining expenditures and expenses were funded through cash flow from
operations and borrowings under our existing credit facility. As of December 31, 2007, we had received $34.2 million in cash and, as of
February 22, 2008, we had received $40.0 million in cash, associated with qualified transition cost reimbursement from Verizon for
certain of these expenditures and expenses. Our accounting treatment of these expenditures and expenses may cause the financial statement
impact of these expenditures to be different than the cash flow impact.
We expect to make additional cash expenditures of approximately $35.0 million related to the merger through the closing of the
merger, assuming the merger closes on March 31, 2008. Pursuant to the fifth amendment to our existing credit facility, we are prohibited
from incurring additional obligations related to the merger after March 31, 2008; provided that we may make expenditures not to exceed
$20 million in the aggregate from the proceeds of equity issuances or if we have received a reimbursement obligation from Verizon or
another third party acceptable to our lenders and certain other conditions are satisfied.
We expect to effect the merger through the issuance of approximately 54.0 million shares of our common stock to existing Verizon
stockholders and the incurrence of debt under the new $2,030 million credit facility consisting of a non-amortizing revolving facility in an
aggregate principal amount of up to $200 million, a term loan A facility in an aggregate principal amount of up to $500 million, a term
loan B facility in an aggregate principal amount of at least $1,130 million and a delayed draw term loan facility in an aggregate principal
amount of $200 million. We expect that Spinco will draw $1,160 million under the new term loan immediately prior to the spin-off and
we will draw $470 million under the new term loan concurrently with the closing of the merger. We expect that the amounts borrowed by
us, together with cash on hand at Spinco, will be used to repay in full all outstanding loans under our existing credit facility
(approximately $684 million as of February 22, 2008) and $4 million of other outstanding indebtedness and to pay fees and expenses
relating to the transactions. We also expect to borrow at least $110 million under the new delayed draw term loan during the one-year
period following the closing of the merger to fund certain capital expenditures and other expenses associated with the merger. Following the
merger, we will also be the obligor on approximately $540 million in aggregate principal amount of the notes.
If the merger is not consummated, we expect to incur approximately $17.8 million of cash restructuring costs, a substantial portion
of which are expected to be paid in the second quarter of 2008, primarily related to the termination of contracts and employees associated
with the transactions.
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Following consummation of the transactions our short-term and long-term liquidity needs will arise primarily from: (i) interest
payments on our indebtedness; (ii) capital expenditures; (iii) working capital requirements as may be needed to support the growth of our
business; (iv) dividend payments on our common stock, to the extent permitted by the agreements governing our indebtedness, including
the new credit facility, and restrictions imposed by state regulatory authorities as conditions to their approval of the merger; and
(v) potential acquisitions.
We anticipate that our primary source of liquidity following the transactions will continue to be cash flow from operations. We are
also expected to have available funds under our new revolving credit facility and the delayed draw term loan facility of the new credit
facility, subject to certain conditions.
As a result of the conditions imposed by regulatory authorities in connection with the approval of the merger, until the termination of
conditions date, the annual dividend rate paid by us on our common stock following the merger may not exceed $1.03 per share.
Financial covenants in the new credit facility and the indenture governing the notes are also expected to restrict our ability to pay
dividends. See “Item 1.
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